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Contents
DEFINITIONS + GENERAL NOTES ................................................................................................................... 5
OFFER + ACCEPTANCE ................................................................................................................................... 6
OFFER AND INVITATION TO TREAT ........................................................................................................... 6
COMMUNICATION OF OFFER ................................................................................................................... 8
ACCEPTANCE ............................................................................................................................................. 8
COMMUNICATION OF ACCEPTANCE ...................................................................................................... 10
TERMINATION OF OFFER ........................................................................................................................ 10
CERTAINTY OF TERMS ................................................................................................................................. 11
VAGUENESS............................................................................................................................................. 11
INCOMPLETE TERMS ............................................................................................................................... 12
AGREEMENTS TO NEGOTIATE ................................................................................................................. 12
ANTICIPATION OF FORMALIZATION ....................................................................................................... 13
ENFORCEMENT OF PROMISES .................................................................................................................... 13
EXCHANGES AND BARGAINS ................................................................................................................... 14
Dalhousie College v Boutiller Estate ................................................................................................... 14
Brantford General Hospital v Marquis Estate ..................................................................................... 14
Wood v Lady Duff-Gordon .................................................................................................................. 14
PAST CONSIDERATION ............................................................................................................................ 14
Eastwood v Kenyon ............................................................................................................................. 14
Lampleigh v Braithwait ....................................................................................................................... 15
CONSIDERATION MUST HAVE VALUE IN EYES OF THE LAW ................................................................... 15
Thomas v Thomas ............................................................................................................................... 15
BONA FIDE COMPROMISES OF DISPUTED CLAIMS ................................................................................. 15
DCB v Zellers........................................................................................................................................ 16
Pre-Existing Legal Duty............................................................................................................................ 16
Stilk v Myrick (1809, Eng KB, 170 ER 1168) ......................................................................................... 16
Gilbert Steel Ltd v University Const. Ltd. (1976 ONCA) ...................................................................... 16
Williams v Roffey Bros & Nicholls (Contractors) Ltd (1990 ENCA)...................................................... 17
Greater Fredericton Airport Authority Inc v Nav Canada (2008 NBCA).............................................. 18
The Law of Duress ................................................................................................................................... 18
Universe Tankships (HL 1983) ............................................................................................................. 19
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Nav (2008) ........................................................................................................................................... 19
Promises to Accept Less .......................................................................................................................... 20
Foakes v Beer (1884), 9 App Cas 605 (HL) (Earl of Selborne) ............................................................. 20
Re Selectmove Ltd [1995] All ER 531 (CA) .......................................................................................... 20
Foot v Rawlings [1963] SCR 197 .......................................................................................................... 21
Judicature Act, R.S.A. 2000 c. J-2 ........................................................................................................ 21
Promissory Estoppel and Waiver ............................................................................................................ 22
Hughes v Metropolitan Railway Company (1877 HL) ......................................................................... 23
Central London Property Trust Ltd v High Trees House Ltd (1947 Eng KB) ........................................ 23
John Burrows Ltd v Subsurface Surveys Ltd (1986 SCC) ..................................................................... 23
D&C Builders Ltd v Rees (1966 ENCA)................................................................................................. 24
Saskatchewan River Bungalows Ltd v Maritime Life Assurance Co (1994 SCC).................................. 24
International Knitwear Architects Inc v Kabob Investments Ltd (1995 BCCA) ................................... 25
WJ Alan & Co v El Nasr Export & Import Co (1972 ENCA) .................................................................. 25
The Post Chaser (1982 Eng QB)........................................................................................................... 26
Combe v Combe (1951 ENCA) ............................................................................................................. 26
Petridis v Shabinsky (1982 ONHC) ...................................................................................................... 27
Robichaud v Caisse Populaire de Pokemouche Ltèe (1990 NBCA) ..................................................... 27
Intention to Create Legal Relations ........................................................................................................ 28
Balfour v Balfour (1919 ENCA) ............................................................................................................ 28
Getting Around Precedents ............................................................................................................ 28
Formality: Promises Under Seal .............................................................................................................. 29
Royal Bank v Kiska (1967 ONCA, dissent) ........................................................................................... 29
Formality: The Requirement of Writing .................................................................................................. 29
Deglman v Guaranty Trust Co (1954 SCC) ........................................................................................... 30
Thompson v Guaranty Trust Co (1974 SCC) ........................................................................................ 31
Lensen v Lensen (1984 SKCA) ............................................................................................................. 31
PRIVITY OF CONTRACT ................................................................................................................................ 32
Provender v Wood (1630) ................................................................................................................... 32
Tweddle v Atkinson (1861, Eng QB) .................................................................................................... 32
Dunlop Pneumatic Tire Co Ltd v Selfridge & Co Ltd (1915, HL) .......................................................... 32
Overcoming Privity.................................................................................................................................. 33
Statutes ............................................................................................................................................... 33
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Specific Performance .......................................................................................................................... 33
Beswick v Beswick (1968 HL) .......................................................................................................... 33
Trusts................................................................................................................................................... 34
Agency ................................................................................................................................................. 34
New Zealand Shipping Co Ltd v AM Satterthwaite & Co Ltd (1975 PC) .......................................... 34
Employment ........................................................................................................................................ 35
London Drugs Ltd v Kuehne & Nagel International Ltd (1992 SCC) ................................................ 35
Edgeworth Construction Ltd v ND Lea & Associates Ltd (1993 SCC) .............................................. 35
Subrogation ......................................................................................................................................... 36
Fraser River Pile & Dredge Ltd v Can-Dive Services Ltd (1999 SCC) ................................................ 36
CONTINGENT AGREEMENTS ....................................................................................................................... 36
Wiebe v Bobsien (1985 BCSC) ............................................................................................................. 37
Wiebe v Bobsien (1986 BCCA, dissent) ............................................................................................... 37
Dynamic Transport Ltd v OK Detailing Ltd (1978 SCC) ........................................................................ 38
Eastwalsh Homes Ltd v Anatal Developments Ltd (1993 ONCA) ........................................................ 38
Unilateral Waiver .................................................................................................................................... 39
Turney v Zhilka (1959 SCC) .................................................................................................................. 39
REPRESENTATIONS AND TERMS ................................................................................................................. 39
Misrepresentation and Rescission .......................................................................................................... 39
Redgrave v Hurd (1881 ENCA) ............................................................................................................ 40
Smith v Land and House Property Corp (1884 ENCA) ......................................................................... 41
Bank of British Columbia v Wren Developments Ltd (1973 BCSC) ..................................................... 41
Kupchak v Dayson Holdings Ltd (1965 BCCA) ..................................................................................... 42
Representations and Terms .................................................................................................................... 42
Heilbut, Symons & Co v Buckleton (1913 HL) ..................................................................................... 42
Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd (1965 ENCA) ........................................... 43
Leaf v International Galleries (1950 ENCA) ......................................................................................... 43
Fair Trading Act ................................................................................................................................... 44
Parol Evidence ..................................................................................................................................... 44
Concurrent Liability in Contract and Tort ............................................................................................... 45
Sodd Corp v Tessis (1977, ONCA) ........................................................................................................ 45
BG Checo International Ltd v British Columbia Hydro & Power Authority (1993 SCC) ...................... 46
Classification of Terms ............................................................................................................................ 46
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Hong Kong Fir Shipping Co v Kawasaki Kisen Kaisha Ltd (1962, ENCA) .............................................. 47
The Doctrine of Frustration................................................................................................................. 47
First City Trust Co v Triple Five Corp (1989, ABCA) ............................................................................. 48
Wickman Machine Tool Sales v L Schuler AG (1974, HL) .................................................................... 48
STANDARD FORM CONTRACTS AND EXCLUSION CLAUSES ........................................................................ 49
Implied Terms ......................................................................................................................................... 49
Machtinger v HOJ Industries LTD (1992, SCC)..................................................................................... 49
Exclusion Clauses .................................................................................................................................... 50
The Doctrine of Unconscionability ...................................................................................................... 50
Tercon Contractors Ltd. vs British Columbia (Minister of Transportation and Highways) (2010 SCC)
............................................................................................................................................................ 50
Thornton v Shoe Lane Parking Ltd (1971 ENCA) ................................................................................. 52
Tilden Rent-A-Car Co v Clendenning (1978 ONCA) ............................................................................. 53
Karroll v Silver Star Mountain Resorts Ltd (1988 BCSC)...................................................................... 53
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DEFINITIONS + GENERAL NOTES
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Contract - a complete, deliberate, and voluntary agreement between two or more competent
persons supported by mutual consideration
o Contract law is residual (covers things that aren't otherwise regulated)
Consensus ad idem - "meeting of the minds," there must be agreement on one set of terms
between all parties to make a contract ("mirror image principle")
Invitation to treat - an expression of willingness to do business designed to elicit an offer from
the other side (no expression of willingness to be bound)
Offer - "an expression of willingness to contract on certain terms, made with the intention that
it shall become binding as soon as it is accepted by the person to whom it is addressed" (Treitel)
o Assessed objectively
Acceptance - "final and unqualified expression of assent to the terms of an offer" (Treitel), and
acceptance is generally communicated on receipt
o Exceptions: postal rule, usage of unsolicited goods, where the course of dealings
reasonably suggests that silence can constitute acceptance
Bilateral contract - an agreement constituted by an exchange of promises that impose
reciprocal obligations on all parties
Unilateral contract - an agreement constituted by a promise given in exchange for an act;
performance of the stipulated act constitutes acceptance of the contract (unless waived or
modified by the offeror); only the offeror is bound
Auctions - two types: with reserve (request for bid is invitation to treat; bids are offers; fall of
hammer is acceptance) and without reserve (request for bid is offer; best bid is acceptance)
o Can use either referential or fixed bids
Counteroffer - a reply to an offer that contains any variation from the initial terms offered; kills
the original offer
Certainty - "an agreement is not a binding contract if it lacks certainty, either because it is too
vague or it is obviously incomplete" (Treitel)
Consideration - "some right, interest, profit, or benefit accruing to the one party, or some
forbearance, detriment, loss, or responsibility, given, suffered, or undertaken by the other"
(Currie v Misa)
o Treitel - "some detriment to the promisee or a benefit to the promisor"
o McCamus - "the act or forbearance or promise given in return for the promise that one
wishes to enforce"; "bargain theory" holds that promises are only enforceable in light of
an exchange (reciprocity)
Damages - except in some circumstances (where an injunction or specific performance can be
ordered; typically when money won't suffice as compensation), damages are awarded as
money. The purpose of awarding damages is to put the aggrieved party in the condition they
would have been in had the contract been properly performed (subject to any uncertainty about
that outcome).
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OFFER + ACCEPTANCE
OFFER AND INVITATION TO TREAT
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Canadian Dyers Association v Burton - intention to enter into contract must be evident, and
determining whether it's an offer or an invitation to treat "depends on the language used and
the circumstances of the particular case" (objective test - "unless language is used to conceal
thought..."; would a reasonable person, in analyzing the words and actions of the parties,
conclude that on balance of probabilities a contract was made, that there was an intention to
be bound by the terms of the offer?)
o Mere quotation of price is not an offer, but an invitation to treat, unless there is some
further fact that makes it evident that an offer has been made
 Harvey v Facey - weirdly decided contrary to common sense; held that a
response of a price to an inquiry about price and willingness to sell did not make
a contract, since it only provided information about the price, rather than
manifesting intention to sell
o Conduct post-"contract" can be informative, in showing that the parties thought a
contract was made or wasn't, but can't tell us what happened at the time of the
agreement (could lead to mischief, contract cannot be modified by subsequent actions)
Pharmaceutical Society of Great Britain v Boots Cash Chemists - the display of goods (even if
their price is specified) is an invitation to treat, and offer/acceptance occurs at the till upon
payment
o No difference between self-serve and full-service stores; consider business efficacy
Carlill v Carbolic Smoke Ball Co - advertisements of unilateral contracts (rewards, performing
some task) are offers; anyone who performs the requested action accepts the offer and fulfills
the contract; acceptance of a unilateral contract consists in doing the activity (following the
conditions put forward in the offer, unless specific performance rules are waived by the offeror),
rather than communicating acceptance of the offer
o Mere puffs (things that are by design not to be taken seriously - advertising copy, etc.)
are not constitutive of offers
o You can overcome some vagueness in an offer if there is a reasonable or ordinary way of
reading it
 Read advertisements from the perspective of an ordinary person - what would
they think was going on after reading the text? (claim that money was put in an
account suggests seriousness, etc.)
o You can't make an offer to the whole world, but unilateral offers are only offers to
parties that undertake to perform the conditions of the contract
o You are responsible to fulfill conditions of your contract, even if they are exorbitant, so
long as they are not patently unreasonable (think the Pepsi case)
o A unilateral contract can be revoked before performance; if an offer of a unilateral
contract is not revoked, it continues for at least a reasonable time
Goldthorpe v Logan - guaranteed offers are enforceable, even if they're reckless, so long as
consideration was exchanged (some benefit or detriment e.g. money for pain/hair removal)
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This case was probably wrongly decided, since it's much more sensible to construct it as
a bilateral contract - the advertisement was much more likely to be an invitation to treat
than an offer to anyone willing to get electrolysis from the defendant
o Also recall principle behind damages - put the person in the condition they'd be in had
the contract been performed; since they compensated the plaintiff for both the damage
and the money she spent on the treatment, they doubly compensated her
Harvela Investments v Royal Trust Co of Canada - acceptance must be made according to the
terms of the offer; in an auction, the seller determines whether the bids are fixed or referential,
and all acceptable bids must comply
o Remember to apply the objective test - if the communication calls itself an invitation,
but functions as an offer, it's an offer; and if the expreess terms say they'll accept the
highest bid, that does not mean you can submit a referential bid
R v Ron Engineering - tenders involve a two-step process: Contract A is created when a bid is
submitted, and the bidding process is governed by the conditions of the tendering agreement;
Contract B is formed after the bid is accepted and the deal is formalized
o So invitation to tender is an offer, governed by the terms of the invitation, which
regulate the bidding procedure
o Contract A is irrevocable and must lead to Contract B's formation - withdrawing an offer
after Contract A is made is a breach of the contract
o Contract A is made on the belief that the tender that was submitted is the tender that
they intended to submit (you're supposed to catch errors before the process is
complete, otherwise there is agreement of the minds ); catching a mistake after
Contract A is formed is irrelevant because the contract has already been formed; the
tendering offer can only be struck down as a mistake if it is patently evident in the
tender agreement itself, or (possibly) if there's something egregiously wrong with the
submission
o Court constructed Contract A as a unilateral contract, but this has changed (now read as
a bilateral contract - important in later developments); aim is to protect the integrity of
the tendering process
MJB Enterprises v Defence Construction - bids accepted in tendering process must be compliant
with rules of bidding procedure. Privilege clause in a bidding agreement does not let you award
the contract to a non-compliant bid, just allows you to choose a bidder other than the lowest
one (or no bidder at all). Terms can reasonably be implied into a contract based on officious
bystander test.
o Formation of Contract A is bilateral, and imposes obligations on the chooser as well
o Terms can be implied into a contract: based on custom and usage; as the legal incidents
of a particular class or kind of contract; based on the presumed intention of the parties
where the implied term must be necessary to give business efficacy to a contract
("officious bystander test" - not a reasonable bystander, but someone who has a
reasonable perspective on what the parties intend [not what a reasonable person would
intend])
o Identifying intentionality: bid is irrevocable, cost of bidding, formality of procurement
process, deadlines
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Tenders must be valid to be accepted (giving rise to Contract A) - must be submitted
before deadlines, using proper forms, including bid security (deposit), mirroring the
terms of the bid (Sorochan's bid was noncompliant because it was not a fixed bid)
Contract A can be breached if the contract is awarded improperly
COMMUNICATION OF OFFER
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You can't accept an offer that you don't know exists (no meeting of minds)
An offer cannot take effect until it is communicated to the offeree
ACCEPTANCE
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Livingstone v Evans - a rejection kills an offer, and it cannot be revived without the consent of
the offeror; a counteroffer is a rejection
o A "mere inquiry" is not a counteroffer or a rejection
o Follow Hyde v Wrench - the offeree cannot revive the offer by accepting it after they
reject it
Butler Machine Co v Ex-Cell-O Corp - when there is a conflict between two sets of terms (a
"battle of the forms"), there are several ways to resolve the conflict, considering the documents
as a whole
o Here, a price increase clause was included in the seller's contract, but was absent in the
buyer's - buyer's terms prevailed
o 3 approaches:
 First shot: terms that initiate the negotiation prevail, unless there is a
substantial change to them that is brought to everyone's attention
 Last shot ("performance doctrine"): this is the orthodox approach - the last set
of terms that is agreed to forms the substance of the contract, since mirror
image rule and Hyde say that each reply where the terms differ kills the previous
offer
 Gives certainty but can be abused and can instigate "silly
gamesmanship"
 Shots fired on all sides: consider all of the sets of terms and reconcile them,
either expressly or by reasonable implication
 Not really followed - Denning LJ is being idiosyncratic here
o If terms of contract are too radically different to be reconciled, then no contract exists
o Generally, on performance the contract is complete
Tywood Industries v St Anne-Nakawic Pulp & Paper - where there is a battle of the forms, the
court can infer what the parties considered; if a non-significant (non-material) change to the
terms is introduced but not brought to the attention of the parties (e.g. putting it on the back
page) the court will try to determine whether it was considered part of the transaction or not
o A material change to a set of terms is a counteroffer that extinguishes the offer
ProCD v Zeidenberg - shrinkwrap licenses are enforceable contracts unless their terms are
objectionable on grounds applicable to contracts in general; clicking OK on a license screen can
constitute acceptance
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A software product can be the subject of a more restrictive contract on top of the
purchasing contract (e.g. offer and acceptance to purchase at a retail store, then a
separate offer and acceptance for a licensing agreement), and it is not required that the
purchaser know all of the terms of the more restrictive contract at time of purchase
o There is more than one way to form a contract, and more than one way to present it; it
would be unreasonable to print a 20 page contract in tiny type such as to fit on a box,
and nothing prohibits a readme or a license warning functioning as a contract
o Buyers must be able to return the software if they do not accept a shrinkwrap
agreement
Dawson v Helicopter Exploration Co - partial performance of an agreement can be treated as
acceptance; if an agreement is subject to conditions subsequent, parties have to try to fulfill
those conditions in good faith
o Courts will try to construct contracts as bilateral to protect offeree and promote
business efficacy
o The existence of conditions subsequent do not prevent the formation of a contract prior
to their fulfillment, but rather imposes obligations on the parties to meet the conditions
o Whether good faith efforts exist is determined on the particular circumstances of the
case (here, where Dawson was posted overseas, a period of silence didn't signify bad
faith or a breach of his obligation to show the stake)
o If you've satisfied a subsequent condition (here, a pilot was found), then withdrawing
the offer is an anticipatory breach of contract
Felthouse v Bindley - silence does not constitute acceptance in general; changes to terms of the
deal (like price) cannot be imposed unilaterally (with silence counting as acceptance - changes
must be explicitly accepted)
o You cannot retroactively create a contract by claiming that you intended to make a deal
that you did not communicate
Saint John Tug Boat v Irving Refinery - silence can sometimes indicate acceptance if the conduct
of the parties in the circumstances appropriately shows acceptance (continued delivery of a
service, etc.)
o Use an objective test - if you acquiesce to the provision of services that reasonably merit
compensation, then you're likely on the hook for paying
o Foisting (putting something on someone without their consent) won't generate a
contract, but if you take the benefit of a service it isn't foisting
o In cases like this, where the conduct (and billing) is ongoing, failing to inform the other
party that you don't want to part of their contract anymore will likely signify that you
intend to remain bound by the contract
Eliason v Henshaw - offeror is master of the terms of acceptance, including how the acceptance
should be done and where it should be sent; acceptance not done on the offeror's terms is not
generally valid acceptance
o The court can imply that reasonably equivalent or better modes of delivery are valid for
acceptance (length of time, difficulty of delivery, etc. - sending the acceptance by
courier is valid if the offer stipulates that it should be mailed, but sending it by wagon
isn't appropriate if it's expected by courier)
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COMMUNICATION OF ACCEPTANCE
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Household Fire and Carriage Accident Insurance v Grant - postal rule: for communications
through the mail, acceptance occurs when the post office accepts the mail for delivery (barring
knowledge that the acceptance was not or could not be delievered)
o Post office acts as though it was an agent for both parties (dissenting judgment points
how that this doesn't really seem valid, since the post office just conveys mail)
o This holds true even if the letter of acceptance is never received
Holwell Securities v Hughes - postal rule is only applied where it is reasonable to use the post,
and can be superseded through express statement or if it leads to absurdity; generally, the rule
won't apply if the negotiating parties intended that the acceptance was to be explicitly
communicated
o Acceptance must be done on offeror's terms if any are specified - stating that an
acceptance "must be received in writing" will trump postal rule, and it won't do to recite
what has been written over the phone
Brinkibon v Stahag Stahl - instantaneous communication rule: for instantaneous
communications, acceptance occurs when the communication is received, subject to any
uncertainty about whether receipt has occurred (objectively considered)
o A contract is formed in the jurisdiction where the acceptance is received (postal rule where it is mailed; instantaneous communication - where it is received)
o Communication to a third party (like a bank) does not suffice to communicate
acceptance, though the third party could relay acceptance if appropriate
o No general rule captures all instantaneous communications, and determining when
acceptance is made depends on the circumstances of the case
o Considerations: who can best identify a failed communication? What makes business
sense? When is a communication actually received (when they read it? When it is
received in their inbox? A reasonable time after it would be expected that they would
receive it?)?
Email is generally treated under the instantaneous communication rule unless it is unreasonable
to expect that
Rudder v Microsoft - for electronic contracts, clicking "I agree" constitutes acceptance
o You accept the contract as a whole, even if you haven't read it all - a long agreement on
multiple screens is equivalent to a multi-page contract, not a pile of fine print that has to
be brought to the attention of the offeree
o Courts are generally deferential to forum selection clauses
TERMINATION OF OFFER
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Dickinson v Dodds - an offer can be withdrawn before acceptance, even if no express
communication between offeror and offeree so long as the offeree knows that some act
inconsistent with the offer has been performed (selling to another person, etc.)
o If no knowledge that an inconsistent act has been performed, then an offer can still be
accepted and made binding
o Information likely has to be transferred by a reliable agent
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Unless the offeree buys the time (consideration - e.g. an option contract), there's no
obligation on the part of the offeror to keep the offer open until a certain point
Byrne v Van Tienhoven - postal rule does not apply to withdrawals
o Until communication of withdrawal is received the offer is still live
Errington v Errington and Woods - unilateral contracts cannot be revoked once performance
begins, but they cease to be binding if an ongoing performance ceases
o Death can terminate a unilateral contract
Barrick v Clark - offers are terminated on the date specified in the offer; if no date is specified,
then an offer will lapse after a reasonable period of time determined by considering the nature
and character of the offer and the circumstances of the offer
o Length of time considered reasonable can only be extended by an act from the offeror
(so asking for more time to consider an offer is meaningless unless the offeror assents)
o Factors that can shape what a reasonable length of time is:
 Mode of communication
 Nature of sale (is the thing being sold subject to fluctuations in price, etc.)
 Objective language of communication (reply soon, take your time)
 Conduct of the parties during negotiation
 How long finalizing the deal will take
 When performance will occur/if there are any restrictions on performance
 If there is demand for the offer from other parties
 If the purported acceptance is final, or if it's a counteroffer
CERTAINTY OF TERMS
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Courts have to balance two competing principles: the courts will not make an agreement for the
parties where no agreement exists; and the courts will make certain what can be rendered
certain
o Must balance business efficacy/reasonable expectations of market with need for clarity
in dealings
Two key elements:
o Criteria/formula (how is the decision made?) and/or
o Machinery (who decides?)
Ways to overcome uncertainty: provide an objective marker (reasonable or market price),
require an arbitrator or external evaluator
VAGUENESS
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R v CAE Industries - a vague contract can be enforceable if all of the terms have been settled and
it is possible to read the words of the contract in such a way to give reasonable content to them
(if we can determine what the parties intended by them such that rights and obligations are
recognized)
o Intention to enter a contract can be gathered from the surrounding circumstances
(objective analysis - look at words and acts)
o Court can find an objective meaning in apparently subjective terms
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Partial performance can be a sign that an enforceable contract exists (since it shows that
any vagueness can be resolved)
o Business efficacy - generally, the person denying the existence of a formal contract has
to show there was no intent; for informal agreements, the intention must be shown
Sudbrook Trading v Eggleton - when the machinery of a contract fails, the court can reasonably
imply a comparable mechanism if the circumstances allow it (if the mechanism is not an
essential term, and if the conditions of the agreement are "subsidiary and inessential" - when
the called-for arbitration failed, the court interpreted this to mean that a reasonable price was
sought)
INCOMPLETE TERMS
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May & Butcher Ltd v R - an agreement to agree is generally not a contract and is not
enforceable; you cannot use an arbitration clause to make the contract enforceable if the
contract itself is void (and the arbitration clause thus imposes no obligations)
o No contract exists where a vital term has been left incomplete or undetermined
o Default machinery (statute or court implication) can only be applied if the contract is
silent about its own mechanism (so if the contract is silent on price, a reasonable price
can be implied; when they disagree about price, since agreement is the mechanism no
implication can be made)
Hillas v Arcos - where the fair meaning of the parties can be extracted (through context or
application of objective standard of reasonableness), and some criteria exist to complete a term,
an incomplete contract can be made enforceable; uncertainty can be overcome if it is part of
the normal course of the transaction in question (when delivery dates are settled, etc.)
o If the contracting parties have successfully made deals before, the court can refer to the
way those obligations were discharged in determining whether a term can be made
complete (was there a price list, what was delivered before, etc.)
o The court can be the machinery to make a decision where there is sufficient information
and context to give meaning to a provision
o Uncertain elements should be interpreted fairly and broadly to give sense to them
Foley v Classique Coaches - where a formula and machinery exist in an agreement, the court can
imply reasonable terms to make an agreement enforceable where they have been left
ambiguous (here, implied term that the gas provided was to be supplied at a reasonable price);
if the agreement has been functioning, there may be no need to strictly define a provision
o When a contested provision forms part of the consideration, the court will probably find
that it's enforceable
o Partial performance indicates that the parties thought they were in a contract
AGREEMENTS TO NEGOTIATE
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Empress Towers v Bank of Nova Scotia - where the formula/machinery are set out in a contract,
especially where objective (like market price), the parties cannot be compelled to accept an
agreement made on other terms; where mutual agreement is required, the court can imply
terms, using the officious bystander test, that put conditions on the performance of the parties
(good faith, no unreasonable withholding of agreement)
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Where terms like rent are "to be agreed," that's not enforceable; if criteria are provided
but no machinery, the court can provide the machinery; where the formula is defective,
the machinery can be used to fix the formula
o Requiring good faith negotiations inside an already-existing contractual relationship is
different than requiring good faith negotiations to create a contract (which are not
enforceable, though bad faith can be a misrepresentation)
Mannpar Enterprises v Canada - if no objective benchmark exists, then there can be no
requirement to negotiate in good faith; no enforceable general obligation to negotiate in good
faith
o When a third party is involved in a contract, but not party to it, that fact must be
considered in determining what can be reasonably understood by the deal via the
officious bystander test (ESPECIALLY if there is a special relationship between them and
a contracting party, like the Crown's fiduciary obligations to native bands)
Wellington City Council v Body Corporate 51702 - good faith is a subjective concept, and in the
absence of an objective marker there can be no enforceable agreement to negotiate in good
faith (since identifying a breach is impossible); if there is an agreement to negotiate, all that is
enforceable is procedural compliance (in accordance with some objectively defined procedure),
and the courts cannot mandate an outcome
o Negotiation in good faith (striving toward an agreement) is not the same as a
reasonable negotiation (which requires that all parties act reasonably)
o NOTE - O'Byrne disagrees with Wellington - good faith has objective elements
Gateway v Arton - obligations to perform in good faith can be enforceable
o Negotiation in good faith is distinct from performance in good faith
o Good faith conceptualized in opposition to bad faith (unfair, dishonest, unreasonable)
ANTICIPATION OF FORMALIZATION

Bawitko Investments v Kernels - when an initial agreement is proposed in anticipation of a
formalized contract, the initial agreement will not be enforceable if essential provisions remain
unsettled, or if it is too vague or broad to give rise to the more complex formal contract, or if it
the parties intended to formalize the final contract and make it solely binding
o Consider the objective intentions of the parties - is the final agreement essential to the
meaning of the agreement, or is it just a formalization of an already existing contract?
o Franchise agreements, given their complexity, must generally be in writing
ENFORCEMENT OF PROMISES
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Contracts are in general not enforceable unless there’s consideration.
Promises made under seal are enforceable even without consideration.
14
EXCHANGES AND BARGAINS
Dalhousie College v Boutiller Estate
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consideration must flow from promisee at promisor’s request (consideration must be internal to
the contract). Third-party promises are not consideration. A pledge is only a contract if there is
consideration.
The subscription/participation of others is not legal consideration because consideration doesn't
flow between promisor and promisee (no privity)
Promising to do something general with donated money is not consideration; short of a
requirement to perform some specific condition or a personal connection to an enterprise
(something to imply a mutual and specific promise), consideration will not be found
Possible test: could the failure to perform some supposed condition ground a claim by the donor
against the donee?
Reliance is not good consideration
A nudum pactum cannot be transformed into a contract unilaterally (subsequent action of
promisee cannot make contract without consent of promisor)
Brantford General Hospital v Marquis Estate
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charitable donations are not contracts in the absence of consideration, and cannot be enforced
as contracts.
Consideration has to be present in the contract, and it cannot be unilaterally foisted by one
party on the other (Mrs. Marquis didn't ask for the naming and it wasn't part of her decision, the
naming wasn't part of the documentation in the deal, and it was still subject to committee
approval; ergo, no consideration)
Gratitude for a pledge is not consideration for that pledge
Wood v Lady Duff-Gordon
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consideration can be implied where an agreement is "instinct with an obligation, imperfectly
expressed"
If required for business efficacy, consideration can be implied; while in this case there was no
explicit consideration offered, it was a necessary implication of the deal that the plaintiff use his
best efforts to place the defendant's products and endorsements (since without doing so, he
would get no money and the contract would be pointless), which was of value in the eyes of the
law
Other factors in implying consideration - the exclusivity of their deal, the way their businesses
interacted
PAST CONSIDERATION
Eastwood v Kenyon

past consideration is generally not valid consideration for a new contract. Promises without
consideration are not contracts, even if they are morally sound and born out of gratitude for a
benefit conferred.
15
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
Promising to pay a debt on someone else's behalf (as a gratuitous promise) does not make you
party to the initial deal that generated the debt, and your promise cannot be made good in the
context of the existing contract
Past benefits conferred by request of a third party are not consideration
Lampleigh v Braithwait

past consideration can be valid consideration if it is based on a reasonable expectation that
there will be payment for the act performed; consideration is internal to the request for action
by the other party (quantum meruit - claim or right in action for the reasonable value of services
rendered)
o Treitel - act must be done at request of promisor, there must be reasonable
understanding that payment would be made, and payment must be of sort that
would've been recoverable had it been promised in advance
o Merely voluntary courtesies remain gratuitous - reasonable expectation of
compensation required
o McCamus - explanation in case (benefit is coupled to subsequent promise) isn't helpful,
look to reasonable expectation of compensation
CONSIDERATION MUST HAVE VALUE IN EYES OF THE LAW
Thomas v Thomas

consideration must be of value in the eyes of the law, and flow from the plaintiff to the
defendant (between parties of the contract).
o Motive is not consideration - respecting the wishes of the dead is not consideration for a
contract between two related but distinct parties
o Where some consideration flows between the two parties, it will be difficult to construe
this as a gift (since £1 flowed from widow to executor, rather than to landlord, this was
consideration; had it flowed to the landlord, it could've been constructed as a gift with a
burden)
o Courts generally won't assess adequacy of consideration (except in cases of an
oppressive or egregious contract)

Warrantees - generally not contracts in common law, since there's no consideration of legal
value flowing between the consumer and the manufacturer, especially if there's no completed
warranty card or anything (marketing information could be consideration); generally covered by
statute
BONA FIDE COMPROMISES OF DISPUTED CLAIMS

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Forbearing to sue is valid consideration – it is the deprivation of a legal right.
So too is waiving a partial defence – a corollary to forbearing to sue.
16
DCB v Zellers

forbearing to sue (in exchange for some benefit) is not valid consideration if the claim is known
to be invalid, or if there is no serious intention to pursue the claim
o Parents are not liable for torts of children unless there is some further fact (negligence,
independent tortious conduct on their part)
o Forbearance to sue is valid consideration, and paying to ensure that makes a contract
o BUT forbearance is not consideration if the claim is known to be invalid; might be
consideration if the claim is doubtful (or even invalid) so long as all parties acted in good
faith, the claim was reasonable, and no facts relevant to the claim were concealed
Pre-Existing Legal Duty


When someone promises to perform a public legal duty that they are already obligated to
perform, then unless there is some consideration beyond the performance of that duty, there is
no contract. If there is some further consideration, though, then there can be a contract found
(Ward v Byham – an agreement to care for children is not valid consideration on its own, since
it’s mandatory).
The performance of a duty owed to a third party has traditionally been treated as good
consideration. Consideration needs to flow from the promisee, but it doesn’t have to go to the
promisor (e.g. Shadwell v Shadwell – a promise to pay contingent on the other party getting
married, when marriage is a duty, is enforceable).
Stilk v Myrick (1809, Eng KB, 170 ER 1168)
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FACTS: After two crewmembers deserted a ship, the ship’s captain promised that the remaining
crew would share the 2 men’s salaries should they not be able to find replacements for them.
No replacements were found, but the captain claims that he doesn’t have to pay on public policy
grounds (since it could incentivize extortion given the isolated nature of sailing). Attorney
general claimed that the agreement was not made under duress.
ISSUE: Are the crewmen owed the extra money?
DECISION: Claim dismissed.
REASONING: The sailors were in a contract already to perform their duties for a wage until the
voyage was complete. There was no consideration exchanged for the promise to pay the extra
wages. Desertion is simply a fact of sailing, and is not an extraordinary circumstance that could
give rise to an obligation (as expelling the 2 sailors could have, if they were tasked to finish the
voyage – contrast Hartley [1857], where consideration was found in undertaking a dangerous
voyage while short-handed). Something has to change about the agreement to make a new
contract; promising to pay more for the same duties is gratuitous. Also negated for policy
reasons – don’t want to incentivize extortion or mutiny for more money.
RATIO: For a promise to pay more to be enforceable, consideration must flow from the
promisee.
Gilbert Steel Ltd v University Const. Ltd. (1976 ONCA)

Plaintiff was in a contract with defendant to provide steel for construction projects. A month
and a half after the first contract was signed, with prices established, the plaintiff and defendant
revised the contract to reflect higher prices for the steel. The following year, another price
17
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increase was agreed to orally, but the written contract that was given to the defendant was not
executed. They sued for the increased price.
The promise to give a “good price” for the second building was too vague to qualify as
consideration for the contractual modification.
The plaintiff claimed that the oral contract was a fundamental modification of a key term of the
old contract (price), and that this was an implicit rescission of the earlier contract; consideration
is the mutual abandonment of the first. The only change made was to the price; a few other
terms were changed but not mentioned. The parties must have intended to rescind the original
contract for that to function as consideration.
Variations to an existing contract have to be supported by fresh consideration.
Williams v Roffey Bros & Nicholls (Contractors) Ltd (1990 ENCA)
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Roffey Bros hired Williams as a subcontractor for a construction project. Williams’s bid was too
low (which Roffey knew), and he had trouble with his workforce. Roffey Bros was bound by a
damages clause in their contract for the entire project – they’d have to pay damages if the
project wasn’t finished by a due date. They offered orally to pay Williams more, divided up per
each renovated unit. The arrangement worked for a few units, but then Roffey Bros refused to
keep paying. The defendants noted that there would be practical benefits to the extra pay
(avoiding damages clause, not having to find a new subcontractor).
Lord Glidewell:
o There are 2 issues: duress and Stilk. Williams was obligated to perform under the
contract. And refusing to complete the work unless more money is paid could be duress,
taking advantage of the difficulties it would cause the contractor. Duress is the superior
approach to Stilk. Both of these have to be established on the facts.
o Test for when practical benefits count as consideration:
 If A has entered into a contract with B to provide services/goods in exchange for
payment from B;
 And before A has fully performed their obligations B has reason to doubt that A
will be able to complete;
 And B promises more money in exchange for A’s full performance under the
contract;
 And B gets a practical benefit or avoids a practical harm;
 And B’s promise is not the result of duress or fraud.
Lord Russell:
o Contractual modifications have to be supported by consideration, but where bargaining
power is equal and the parties truly intend to make the modification, consideration
should be readily found. A pragmatic approach should be taken.
o Roffey Bros benefited from the low price and odd payment schedule – these are
benefits, as well as avoiding the damages clause, etc.
o Per Stilk, gratuitous promises remain unenforceable unless under seal.
Lord Purchas:
o Where the offer to pay more was made unprompted by one party, that party cannot
plausibly claim duress.
o Securing a commercial position is a practical benefit.
18
o
o
The threat of a contractual breach should, in normal circumstances, be looked to as
consideration. It can count, as there is a legal right to breach a contract and pay
damages (so a flavour of forbearance). But it’s “distinctly unattractive”.
There need not be detriment suffered by both parties to suffice as consideration if both
parties benefit from the modification.
Greater Fredericton Airport Authority Inc v Nav Canada (2008 NBCA)
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Nav is solely responsible for air navigation services at Canadian airports, including the purchase
of new equipment. GFAA wanted to extend a runway, and requested that they replace the
system on the runway rather than relocate it. Nav refused to relocate the system unless GFAA
paid for the new equipment. GFAA agreed, though they maintained that they were not
responsible to pay, and they signed the agreement under protest.
Nav didn’t provide any consideration in exchange for GFAA’s promise – this is a bare
performance of a pre-existing obligation, which doesn’t count as consideration per Stilk.
Forbearing to breach an existing contract is not fresh consideration. Nor can they claim
detrimental reliance as consideration – that’s an estoppel, and they’d be using it as a sword.
Courts have used a number of creative techniques to try to circumvent Stilk where there’s no
duress (mutual rescission of the earlier contract, that there was actually something more
promised beyond the contractual duty on the facts or due to changes in material circumstance,
accepting detrimental reliance as a sword anyway). Williams should be followed to avoid this,
not Stilk. There are policy reasons to allow variations to existing contracts that lack
consideration so long as there’s no duress:
o More flexible doctrine – allows voluntary modifications without consideration, and also
bars modifications made under duress that would be allowed due to fresh consideration
being provided.
o Commercial efficacy – parties need to modify contracts as time goes on to protect their
legitimate expectations.
o Clearer and more certain law – no need to make up consideration to avoid the doctrine,
nor will Stilk work in tandem with estoppel to sabotage people who make changes in
good faith
o More modern law – Stilk reflects commercial reality in the 19th century, not today
Stilk is pared down so it’s not determinative - existence of consideration is an element of duress
analysis. Where there’s consideration, whether it was in the context of a consensual bargain is
relevant (since nobody would reasonably consent to pay more in exchange for nothing absent
duress).
The Law of Duress
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
Duress undermines the formation of a contract, making the agreement voidable. Historically, it
only referred to contracts which were the result of actual or threatened violence. Today it has
expanded to include economic duress as well. Economic duress usually takes the form of
financial pressure – mere commercial pressure isn’t enough (Pao On) but going beyond that can
vitiate the contract.
Pao On – duress is “coercion of the will so as to vitiate consent”. Relevant considerations:
o Effectiveness of alternate remedies
19
o
o
o
o
Presence or absence of protest
Availability of independent legal advice
The benefit received
Speed with which the victim has sought to avoid the contract
Universe Tankships (HL 1983)
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The mainstream test for duress in Canada is from Universe Tankships. Duress requires:
o Pressure amounting to compulsion of the will (there must be no practical alternative)
o The pressure exerted must be illegitimate.
This discards the “overborne will” theory from Pao On – no need for a psychological inquiry.
“Overborne will” was too vague, and it was almost impossible to show.
“Illegitimate pressure” requires consideration of the nature of the pressure AND the nature of
the demand.
o Threatening to breach a contract may or may not be legitimate, depending on the
nature of the demand. Good faith attempts to enforce legal rights (e.g. breach) are not
illegitimate.
o Things which smell like blackmail are illegitimate. Any threat of unlawful action is
illegitimate. But pressure doesn’t have to be unlawful to be illegitimate – bad faith
actions usually qualify.
Nav (2008)
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The key issue for duress is lack of consent. Absence of practical alternatives, or illegitimate
pressure, are evidence of no consent, but they are secondary.
The illegitimacy of the pressure isn’t relevant – it’s the pressure’s impact on the victim.
Illegitimate pressure is not a condition precedent to finding economic duress.
The sophistication of the parties isn’t relevant to a finding of duress. Issues like
unconscionability or undue influence don’t factor into duress, though they’re relevant in other
issues for the formation of contracts.
Gratuitous promises can be enforceable if it’s the product of a consensual agreement.
Test for duress:
o The contractual variation must have been extracted by the promisee as a result of the
exercise of “pressure”. (So no duress if the promisor made the promise unprompted.)
o The exercise of pressure must have been that there was no practical alternative but to
agree to the coercer’s demand.
o The coerced party must not have consented. Factors:
 Whether there was consideration (no consideration suggests duress;
consideration, even a peppercorn, leans more toward normal commercial
pressure)
 Whether the promise was made under protest or “without prejudice” (not
necessary, but very helpful)
 Whether the coerced party took reasonable steps to disaffirm the promise as
soon as practical (if you sit on it, a duress claim will probably fail)
There is no consideration of whether independent legal advice was sought, though that can be
probative (especially outside of a commercial context). Whether the parties acted in good faith
20
is relevant for considering if there’s consent, but not determinative of whether the victim still
has a legal right to sue.
Promises to Accept Less
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Unlike where there is a promise to pay more, an agreement to pay less has historically, at
common law, not been enforceable. There is no way to square the value of the debt with the
value of the payment.
This can be overcome if the performance of the obligations has been partly completed. If both
parties have partly completed the agreement, the old contract can be rescinded and a new
contract made, where the consideration is the abandonment of the old contract.
If one of the parties has fully performed the agreement, but the other hasn’t, an “accord and
satisfaction” is required. You have to buy the other party out for some consideration other than
performing the contractual obligation. The accord is the agreement to discharge the obligation,
and the satisfaction is the consideration (a peppercorn will suffice).
o It can also be under seal to be enforceable.
Foakes v Beer (1884), 9 App Cas 605 (HL) (Earl of Selborne)
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FACTS: Foakes was the debtor for Beer, and Beer had a judgment against Foakes for the debt.
Beer agreed to a payment schedule over several years in exchange for not taking proceedings
against Foakes. Foakes paid the principal off, but Beer claimed interest at the end of the
payment time.
ISSUES: Is Beer entitled to the interest, above the agreement to pay less?
PROCEDURAL HISTORY: Court of Appeal entered judgment for Beer.
DECISION: Appeal dismissed.
REASONING: The agreement was not under seal, so it must operate through consideration for
accord and satisfaction. There was no consideration that was not independent of the debt that
was already owed from Foakes (he already owed the $500 paid) in exchange for the agreement
not to sue. The payment of the debt could not function as satisfaction either absent other
consideration, since it was conditional on future instalments being paid. Finding for Foakes
would overturn centuries of precedent, starting with Pinnel’s Case, that precludes the payment
of a lesser sum in satisfaction of a greater unless under seal.
RATIO: An agreement to accept less is only enforceable if it is under seal, or if some fresh
consideration (independent from the payment of the debt) is provided. A lesser sum cannot be
satisfaction for a greater.
Re Selectmove Ltd [1995] All ER 531 (CA)
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FACTS: Selectmove was required to deduct money from its employees for tax, but did not do so.
They proposed to a tax collector to pay future taxes as well as a fixed monthly sum, and the
collector said that he would contact them if the agreement was unacceptable. Several months
later the Crown sued for the whole sum. The company had paid 7 monthly payments, but after
the Crown sued they dismissed their employees and sold their work. The Crown sought the
payment of arrears the following year through liquidation of the company.
ISSUES: Did the Crown accept the proposed payment agreement, and if so was it supported by
consideration?
21
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DECISION: Found for Crown.
REASONING: Selectmove claimed that the consideration was to be found, akin to Williams v
Roffey Bros, in the practical benefits received by the Crown through the agreement. While this
argument has merit, it flatly contradicts Foakes, which is binding. This can only be changed by
the House of Lords, or by Parliament.
RATIO: Practical benefits accrued through repayment are not consideration for accepting a
lesser sum in satisfaction for a greater.
COMMENTS: Compare with the treatment of Robichaud (NBCA, 1990), where it was held that
when an institution knowingly and willingly entered into a debt consolidation agreement,
adequate consideration was provided through the “immediate receipt of payment and the
saving of time, effort and expense”.
Foot v Rawlings [1963] SCR 197
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FACTS: Rawlings owed Foot money, and proposed a payment schedule to which both parties
agreed. Rawlings was to pay a fixed monthly amount, subject to a penalty for missed payments
(reversion to initial debt agreement with a higher interest rate). The agreement was struck for
Foot’s sake, as well, as he was elderly and wanted the money in the short term to support his
lifestyle. The agreement was substantially followed. Two years after the agreement, Foot sued
for the balance of the debt.
ISSUES: Was consideration exchanged for the agreement to pay less?
PROCEDURAL HISTORY: Respondent succeeded at trial, but overturned on appeal.
DECISION: Appeal allowed.
REASONING: Rawlings provided a number of post-dated cheques, which counted as
consideration for the forbearance to sue so long as the cheques were provided and could be
cashed. The cheques are a negotiable instrument of uncertain value, and thus do not fall afoul
of the less for more problem since there is no difficulty in satisfying a debt with something of
uncertain value (as agreed to by the parties). Foot cannot violate his promise to forbear to sue
so long as Rawlings is providing the post-dated cheques, which he was doing.
RATIO: The acceptance of a negotiable instrument of payment (one of uncertain value - new
method of payment, new location or time of payment, etc.) can be valid consideration, even if it
is worth less than the face value of the debt.
COMMENTS: Lord Denning thinks this argument is stupid, D&C Builders. A cheque is worth its
face value when you cash it, and cannot be distinguished from payment in cash.
Judicature Act, R.S.A. 2000 c. J-2


13(1) Part performance of an obligation either before or after a breach thereof shall be held to
extinguish the obligation
a) when expressly accepted by a creditor in satisfaction, or
b) when rendered pursuant to an agreement for that purpose though without any new
consideration
This is designed to combat Foakes, but can leave other less for more scenarios uncovered.
o a) governs consideration. In a), though, acceptance means performance, not agreement,
so if there’s a delay before the agreement is performed the debtor can probably resile.
22
o
o
b) governs instalment payments. In b), it’s unclear whether the creditor can resile during
the payment (since “when rendered pursuant” doesn’t seem to include “when being
rendered pursuant”).
 There is case law (e.g. Hoolahan v Hivon, 1944 ABCA) that suggests that a
creditor cannot resile while the agreement is being performed. But it’s
ambiguous what would happen in any given case.
It’s unclear whether this applies to straight up forgiveness of a debt.
Promissory Estoppel and Waiver
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An agreement without consideration can be enforceable if you can establish promissory
estoppel.
Promissory estoppel is an equitable doctrine, so you have to be squeaky-clean to trigger it.
The basic formula for establishing promissory estoppel is:
o There is a pre-existing legal relationship, of the relevant kind (Petridis), between the
parties;
o There is a clear representation of intention by the representer;
o The representer knows that the representee will act on the promise;
o The representee relies on the representation (may or may not require detrimental
reliance – time (Post Chaser), money, etc.);
o The equities must show that it would be inequitable for the representer to resile from
the representation.
The key is determining what the representation was, and what action was taken on its basis.
It’s disputable whether reliance or detrimental reliance is required:
o Gilbert Steel - Wilson J says that detriment is required to invoke estoppel
o NAV - detriment is invoked again as a requirement for estoppel
o Post Chaser - no estoppel without significant detrimental reliance
o WJ Allan - detriment is not required (Denning); estoppel can be established for benefits
o Maracle (SCC) - representation must be acted on, but it need not be detrimental, it only
must change your position
o Treitel - change in position based on representation must make it inequitable to allow
the promisor to act inconsistently with it
o Basic common law rule requires consideration; to invoke the equitable remedy of
promissory estoppel, you have to show it’s inequitable to insist on that
Promissory estoppel is suspensory – the estoppel can be terminated with reasonable notice
(determined on the facts – Hughes), so long as it’s equitable:
o For ongoing obligations, resiling from the estoppel resumes the initial agreement; no
recovery for arrears during the time the estoppel was operational. Reasonable notice is
required to allow the promisee time to resume their original position; if they cannot do
so or it would be inequitable, the estoppel may be permanent.
o For one-off obligations, you can’t generally take the estoppel back. (In some
circumstances, you can resile and restart whatever was being estopped depending on
the equities.)
23
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
Proprietary estoppel and waiver are basically two sides to the same idea – waiver is voluntarily
relinquishing a right, estoppel is inhibiting the exercise of a known right. Basic idea is that you
can’t go back on a choice when it’d be unfair to the other party.
In general, promissory estoppel can only be invoked as a shield to an action, not a sword to
found one.
Hughes v Metropolitan Railway Company (1877 HL)


The Railway leased property from Hughes. Hughes served notice that the Railway repair the
property within 6 months; they responded by suggesting that Hughes buy them out instead, and
defer the repairs until they discuss that. They began negotiating, but the negotiations broke
down 2 months in. Hughes never agreed to defer the repairs. At the end of 6 months, Hughes
got a writ of ejectment.
Where parties enter into negotiations where it is indicated that the strict legal rights arising
under the contract will not be enforced/held in suspense or abeyance, then it would not be
equitable to allow them to enforce those rights after the fact. By negotiating, Hughes indicated
that the clock on doing the repairs wasn’t running while the negotiations progressed, in
accordance with the Railway’s letter. Only after the negotiations collapsed did the clock restart.
Central London Property Trust Ltd v High Trees House Ltd (1947 Eng KB)
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High Trees was a subsidiary of Central, and they entered into a lease agreement for some flats.
During the war, it was clear that the flats would not be filled by tenants; Central agreed to cut
the rent in half. This kept up until the end of the war, at which point the flats were fully
occupied. Central sent a letter saying that the higher rent was to be reinstated, and they later
sued to recover rent for the time after the letter was sent.
At law, since the agreement was under seal, recovery could be made for the full rent for the
entire term of the lease. But equity can vary the terms of the contract in line with the parol
agreement.
Representations of existing facts (present or past) can ground an estoppel by representation.
Representations to the future cannot ground an estoppel by representation. BUT where a
promise is made which was intended to create legal (binding) relations (meaning intended to
modify an existing legal relationship), and which was knowingly going to be acted upon by the
promisee, and which was actually acted upon, the promise can be binding absent consideration
– it gives rise to a promissory estoppel. The courts can refuse to allow the promisor to go back
on that promise based on equity, though there won’t be damages for the breach.
o This could include less for more situations.
Since the promise here was understood to only apply while the flats were partly leased, no rent
could be recovered for the interval until full occupancy arose.
John Burrows Ltd v Subsurface Surveys Ltd (1986 SCC)

Subsurface bought a business belonging to Burrows, part of which was paid for using a
promissory note. It contained a payment schedule and an acceleration clause which could be
invoked if there was a default of more than 10 days on a payment. The defendant was
consistently in default of more than 10 days, though usually less than a month. Burrows
24
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
accepted the late payments without protest. After a disagreement between the parties,
Burrows invoked the acceleration clause and sued for the whole sum.
Promissory estoppel will only be recognized where there is evidence that one of the parties
entered into a course of negotiation which had the effect of leading the other party to suppose
that the rights of the contract won’t be strictly enforced. That is, there must be evidence to
support an inference that the representer intended to alter (waive or modify) the legal relations
between the parties (as a result of a “course of negotiations”).
o While the term “course of negotiations” was used here (from Hughes), it’s not likely
essential – merely some representation is required (Maracle – SCC).
Taking advantage of an indulgence by the other party is not sufficient to ground promissory
estoppel. If there is no inference that there was an intention to modify legal relations between
the parties, then failing to enforce a right is more likely an indulgence and they’re not likely
estopped from exercising that right.
D&C Builders Ltd v Rees (1966 ENCA)




D&C did work on the Rees’s premises and billed them; there was no evidence that Rees was
dissatisfied with the work. Rees stopped paying partway through. When D&C contacted them,
Rees’s wife told them they would not be paying the full sum, complaining about the work. She
offered a lesser sum; D&C reluctantly accepted it because they would be bankrupted otherwise.
She knew this. The receipt was signed “in full satisfaction”. A few days later, D&C sought legal
representation and claimed the remaining amount.
There was no consideration here. But Rees claimed when they cashed the cheque they accepted
it in full satisfaction of the debt. This can’t be true per Foakes, unless equity can step in. If, per a
course of negotiations, the debtor is led to believe that the creditor will accept a smaller sum
without enforcing payment of the balance, and pays that sum as satisfaction for the creditor,
then there won’t be enforcement where it would be inequitable to allow it.
Promissory estoppel can be used to suspend legal rights AND to preclude their enforcement.
Promissory estoppel only functions where it is equitable. Where there is not a “true accord”,
then an agreement to accept less for more is not binding. (Denning’s idea of a “true accord”
seems to go beyond equity, into law and perhaps statute even.) Rees’s wife did not have a legal
right to say “take less or take nothing”, and she knew that D&C needed the money. Her threat
was intended to compel D&C to do what they were unwilling to do otherwise – where undue
pressure (what this means is unclear and perhaps it is unhelpful) is put on a party, then equity
will not enforce the agreement when it is not enforceable in law. You can’t blackmail people and
then demand equity step in.
Saskatchewan River Bungalows Ltd v Maritime Life Assurance Co (1994 SCC)

SRB had a life insurance policy on Fikowski, the ownership of which was transferred to his wife.
SRB retained the responsibility to pay for the policy; they did so irregularly. At one point, the
policy lapsed, but it was reinstated. SRB sent off a cheque one year which missed the deadline; a
notice arrived the next month, and they paid the difference between the cheque and the
amount on the notice. The cheque never showed up, so Maritime sent another notice which SRB
didn’t receive until the next year, as they closed their office for the winter. The policy lapsed,
and they informed Fikowski’s wife; Fikowski died shortly thereafter uninsured.
25
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
Waiver exists where on party takes steps which amount to foregoing reliance on a right or
defect in the other party’s performance. Waiver can only be established where the waiving
party had a full knowledge of their rights, and an unequivocal and conscious intention to
abandon them. This is a strict test, since there’s no consideration to support waiving the right.
What constitutes a waiver depends on the facts – it depends on whether a clear intention to
waive the right was communicated to the other party.
Maritime clearly waived the right to compel timely payment in one of its letters. But SRB took
too long. Waiver can be withdrawn if reasonable notice is given to the party who benefits from
the waiver. An informal communication is sufficient notice if it communicates an intention to
insist on strict compliance. This is required to protect the other party’s reliance on the waiver.
There is no need for notice where reliance is not an issue. SRB didn’t rely on the waiver since
they didn’t know about it, and even after they did find out that the policy lapsed they still
delayed their payment. So the policy wasn’t in effect after they told Fikowski’s wife that the
policy had lapsed.
International Knitwear Architects Inc v Kabob Investments Ltd (1995 BCCA)





IKA leased commercial premises from Kabob. During the lease, they had financial problems, and
Kabob agreed to reduce the rent. While the agreement was still in effect, IKA missed a payment,
and Kabob distrained for arrears.
Kabob was estopped from claiming arrears until at least the point where IKA missed the
payment and was no longer complying with the new agreement. A representation can be
revoked with reasonable notice.
Notice to resile need not be dated. A reasonable time period can be implied.
What length of time qualifies as reasonable notice depends on the facts and the equities
including the conduct of the parties.
Note: what happens where there’s a default under the new arrangement depends on the terms
of the new arrangement. If it’s silent, then terms will be applied, and arrears may or may not be
granted depending on what terms are found.
WJ Alan & Co v El Nasr Export & Import Co (1972 ENCA)


The buyers bought coffee from the vendor under 2 contracts, paid for by an irrevocable letter of
credit in Kenyan shillings. The letter of credit was opened in sterling instead, but the currencies
were at par so there was no complaint. The first contract was fully executed, and the second
had been delivered, but while the invoice was being prepared for the second it was announced
that the sterling was to be devalued. Kenyan shillings did not follow suit, and they modified the
invoice to reflect the difference in value between the sterling and Kenyan shillings. The buyers
refused to pay the extra.
Lord Megaw:
o The acceptance of the letter of credit in sterling modified the terms of the contract – it
was irrevocably binding on the buyer once it was opened. Where the buyers were
unable to unilaterally revert to the stated currency, so too were the sellers.
o The difference in currencies could have benefited either party depending the market –
it’s not as though if the Kenyan shilling was devalued the buyers could demand a refund.
26
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
(This is perhaps consideration – both parties gave up a chance to benefit from different
currency valuations. But that’s maybe not convincing.)
o Since this was a one-time transaction, there are no ongoing terms to modify going
forward. Once the terms are fixed for a one-time transaction, you cannot later resile
from a variation as it’s part of the contract. A waiver or promissory estoppel cannot be
revoked after the transaction is completed and the attendant legal consequences and
responsibilities have arisen.
Lord Denning:
o Where one party leads another to believe that strict compliance with the contract will
not be enforced, intending that the other party will act on that belief and does so, then
there can be no enforcement of their right would be inequitable. After the letter of
credit was accepted, it was treated as though it conformed.
o There need not be detriment to ground a waiver (e.g. granting more time, or an
agreement to pay less), so long as it would be inequitable to resile because the other
party acted on the representation and altered their position from what it would have
been otherwise. Nor need there be consideration, or a written agreement.
Lord Stephenson:
o Whether detriment is required is an open question.
The Post Chaser (1982 Eng QB)



Plaintiffs sold palm oil to the defendants, who sold it to sub-buyers. One of the terms required
that a declaration of ship be made to the buyers ASAP; this wasn’t done, but the buyers didn’t
protest. The sub-buyers did, though, and rejected the documents. The buyers followed suit, and
the sellers were forced to sell the oil at a loss elsewhere.
There was a representation by the buyers that they’d accept the documents despite the failure
to declare ASAP. But the only reliance was that the documents were presented, which was
based on the representation that they’d be accepted. It is impossible to show any detriment
here – no money was spent, and insufficient time elapsed to attribute any importance or
prejudice to their position based on the reliance. Some prejudice to their position must be
shown.
It is not necessary to show detriment – all that has to be shown is that it would be inequitable to
resile, based on the circumstances and having regard to the dealings that have taken place.
Prejudice to their position does not require detriment. There is nothing in this arrangement that
would make resiling inequitable.
Combe v Combe (1951 ENCA)


The parties divorced. There was an agreement to pay an annual sum for maintenance, made
between solicitors. The husband never actually paid up; the wife didn’t apply to court for
maintenance. She made more money than he did. 7 years later, she sued; part of her claim was
barred by statute, but she was given the remainder on the ground that he was bound to pay the
sum by estoppel (as there was no consideration).
Promissory estoppel cannot create a new cause of action; it only prevents a party from insisting
on their strict legal rights where it would be unjust to enforce them. It is only a component of a
cause of action, not a cause itself. Doesn’t matter if it’s the plaintiff or the defendant claiming it.
27
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
Promissory estoppel cannot do away with consideration where consideration is an essential part
of the cause of action. Consideration is still the foundation of actions in contract. All it means is
that where some modification has been made to a legal relation, it will be enforced where it is
equitable.
Detriment which was not suffered at the other party’s request cannot qualify as consideration
for a contract between the parties. (Really? Isn’t it a detriment to a legal right?)
Remember that promissory estoppel is an equitable doctrine – you can’t sit on a claim or wait
too long to claim your rights, or else you’ll be barred.
Petridis v Shabinsky (1982 ONHC)

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

Petridis operated a restaurant in Shabinsky’s shopping centre. The lease included an option to
renew, which expired 6 months before the lease did (and included mechanism to resolve
disputes about rent). Before the option expired, Petridis mentioned that they needed to
negotiate the renewal; this was taken up after the holidays (and the expiry of the option). In the
following months, the negotiations collapsed after they couldn’t agree on rent (but no
arbitration was sought). The plaintiff was served with notice to vacate, and the defendant
immediately found a new tenant.
Representations must be made in the context of an existing legal relationship. The option was
terminated before negotiations began, so the optioner-optionee relationship was extinguished
before negotiations began. There’s no promissory estoppel because the relevant legal
relationship had been extinguished. (Note: here, estoppel would have to be useable as a sword
AND function without detriment to apply. But isn’t landlord-tenant a relevant relationship too?)
However, the landlord continued to recognize the right to renew (through the ongoing
negotiations) – it’s a waiver, not a variation of the contract. Rights can be waived by words or
deeds, and when that occurs equity can step in and control the enforcement of those rights at a
later time.
The landlord carried the negotiations past the expiry date, and didn’t exercise the right to
terminate the option. It would be inequitable to allow termination without reasonable notice in
the circumstances. Since the option agreement was arguably still alive the notice to vacate was
void – arbitration for a rental agreement was ordered.
Robichaud v Caisse Populaire de Pokemouche Ltèe (1990 NBCA)



Caisse promised to remove a judgment against Robichaud, as part of a debt consolidation
agreement, for $1000 (less for more). Caisse’s board of directors refused to ratify the
agreement, which was made by a branch manager.
In the jurisprudence, promissory estoppel is a shield and not a sword. But this is an irrational
distinction, making the success of the action depend on who is the plaintiff and who is the
defendant. If the justification for estoppel is in the reliance, then it shouldn’t matter what party
does the relying – sword or shield is irrelevant. To hold so would be inequitable, if it meant that
a defendant could succeed but a plaintiff couldn’t. All of the elements of promissory estoppel
were met here, and enforcing the agreement was equitable.
Note: Robichaud could’ve used estoppel as a shield if he had waited for Caisse to enforce their
judgment.
28
Intention to Create Legal Relations



Contracts are voluntary obligations – the parties must intend to create them.
Where there’s offer, acceptance, and consideration, there’s a presumption that a contract has
been intentionally created in commercial relations. This claim is rebuttable if you can show on
the facts that there was no intention to create binding obligations (Rose and Frank).
o A “letter of comfort” – a statement short of a guarantee that a parent company will
ensure that their subsidiaries can pay their loans – can possibly impose obligations
based on an objective reading (is there a statement about whether it’s intended to be
legally binding? Etc. - Leigh).
This must be objectively proven – subjective intention is not captured in this requirement, only
the objective consideration of whether an intention was evinced in the instrument.
Balfour v Balfour (1919 ENCA)



Plaintiff sued her husband for money owed to her as an allowance while he was out of the
country (to care for her, as she was ill), in exchange for forbearing to pledge his credit. At the
time, they were “a couple in amity”, though they later decided to separate. (It was implied that
the allowance would be terminated when alimony was fixed.) The trial judge found the
agreement binding.
Not all agreements are contracts enforceable in law (e.g. agreement to walk in the park).
Agreements between spouses are presumptively not contracts (as there is no intention to create
legal relations and consequences based on them), even where there is consideration or the
agreement would otherwise constitute a contract if made between other parties. Love and
affection are not consideration, and they are what governs agreements made between spouses.
To establish a contract between spouses, there has to be evidence that the parties intended to
create legal relations – it is not presumed.
Allowing contracts to enter the domestic realm is bad for policy reasons – families are governed
by their own rules, and the law should not intrude. Expanding contracts into families would
swamp the courts with claims.
Getting Around Precedents


Balfour is a terrible precedent – there’s no clear reason to reverse a presumption for familial
relations, based on the doctrines in contract (where there’s consideration…).
How to get around precedents:
o Try to distinguish them away first. There’s usually some relevant difference.
o You can ask the court not to apply the precedent, if it doesn’t make sense to invoke it
under the circumstances (or it doesn’t reflect today’s societal realities).
o You can use a critical perspective to destabilize it. Look for patterns of exclusion and
vulnerabilities imposed by law, and identify why applying the precedent would be
unjust.
 E.g. Bliss (SCC 1979) – it was held that a longer qualifying period for pregnant
women to claim unemployment insurance was legitimate because it applied to
pregnant men as well; it’s not the law’s fault that men don’t get pregnant.
 This was reversed in Brooks (1989) – discrimination on the basis of pregnancy is
discrimination based on sex (and the law, not on nature).
29

Attacking Balfour – look at the distinction between the family and the market/society. Claiming
that the family is not governed by the law, but by affection and love, denies the protection of
law to those who need it. The exclusion is based on the presumption that all families are
governed by love – but where they aren’t, the protection of the law is needed most.
Formality: Promises Under Seal


A promise made under seal is enforceable absent consideration. It has evidentiary and
cautionary functions:
o It makes it clear that a legal obligation was intended.
o It forces consideration of the legal consequences of the promise.
Whether a contract is under seal is a question of fact.
Royal Bank v Kiska (1967 ONCA, dissent)



Royal Bank sued Kiska based on a guarantee for a loan made to Kiska’s brother. Kiska signed the
guarantee. The word “seal” was printed next to the signature line, but there was no wafer
attached.
A wafer or other representation of a seal made by the signer will suffice to show a contract is
under seal – you don’t need wax.
Text in the document (e.g. “given under seal”, the word “seal” appearing where a seal is to be
affixed) is not itself sufficient to put the contract under seal. A seal must be properly executed –
things which are anticipations of formalization under seal are not themselves seals. Putting a
contract under seal is its own act which serves a purpose in ensuring that there is an intention to
put it under seal. You have to know that it’s going under seal.
Formality: The Requirement of Writing



Some kinds of agreements have to be in writing:
o Contracts for the sale of land or interests in land
o Contracts not to be performed within a year
 Rule in Adams v Union Cinema – contract only has to be in writing if its
performance must of necessity last longer than a year.
 Rule in Hanau v Ehrlich – if there’s no mention of time in the contract, and the
time is uncertain or indefinite, then the contract doesn’t fall under the Statute.
o Contracts for the sale of goods worth more than $50, unless there is part performance
under the Sale of Goods Act
o Contracts of guarantee (must also be notarized)
o Some other historically included, but less relevant types (contracts made upon
consideration of marriage, contracts to charge an executor on a special promise to
answer damages out of their own estate)
This is governed by statute:
o Statute of Frauds (s. 4 – for land, more than a year)
o Sale of Goods Act (for sale of goods)
o Guarantees Acknowledgement Act (for guarantees)
Historical purpose was to prevent fraudulent claims – juries at the time were allowed to rule
based on personal knowledge, and rules of evidence were not established. It led to unjust
30
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


outcomes – the law could be used by unscrupulous plaintiffs to punish others through perjured
oral contracts. This isn’t the case today, but the Statute of Frauds persists in AB. (It has been
repealed in some jurisdictions.)
Oral contracts are generally enforceable except in the mandated circumstances where writing is
required by statute.
Contracts which do not comply with the Statute are unenforceable (e.g. no action can be
brought on them), but still valid. It can still be used as consideration for a new contract. It can
also be used as a defence to other actions (which wouldn’t be allowed if void), or to ground
enforcement based on subsequent evidence.
Requirements for writing:
o There must be some form of note or memorandum. No particular form is required, and
it need not be intended as a memo; there merely has to be evidence of the contract
(even a repudiation will suffice).
o The written note cannot deny the existence of the contract.
o It must come into existence before an action is brought.
o It must contain all essential terms:
 Parties
 Property
 Price
 Any other material circumstances (e.g. Tweddell v Henderson – the payment of
the price in stages; Huttges v Verner – reservation of a life estate by the vendor)
o Terms can be implied or reasonably inferred; parol evidence can be introduced to help
explain the terms but NOT to modify terms.
o It has to be signed – initialing works. The signature has to be placed with the intention
of authenticating the document. It doesn’t require that both parties sign. An agent can
sign for a party if authorized.
o Multiple documents can be “joined” together to constitute a memo, so long as they are
obviously connected or refer to each other. (Parol evidence doesn’t suffice.)
The equitable doctrine of part performance can be used in some circumstances to enforce a
contract for sale or transfer of land that isn’t in writing. Governed by Maddison v Alderson.
Usually mere payment of money is insufficient – it has to be some act.
Deglman v Guaranty Trust Co (1954 SCC)


Constantineau was the nephew of the deceased, Brunet. He lived with her for a few months
while he was going to school. She owned two adjacent lots, and she is purported to have said
that if he was “good to her” and performed services as she requested them, she would leave the
adjacent premises to him. There was no written agreement. He only ever lived with her for 6
months, and performance consisted of driving her around occasionally, doing odd jobs, and
some errands.
Rand J (minority):
o Per Maddison v Alderson, part performance requires that all acts done be referred to in
the specific agreement being relied on (narrow interpretation).
o The acts done had no relation to the agreement to devise the adjacent premises – at
most, they were done on the understanding that he’d be compensated for his services,
31

if not done out of familial obligation. There’s no more connection to the premises in
question than to his aunt’s needs or the main property.
o Part performance relies on the equities of acts which have been done, and they must be
unequivocally referable ONLY to the actual contract alleged (for the lands in question).
There has to be a connection between the acts and the specific agreement, and it will
only apply where the Statute operates to destroy equities.
o Since the services were provided on the footing of a contractual agreement (they were
to be paid for somehow), a (contractual) quantum meruit can be awarded to pay a
reasonable price for the services (as it’d be unjust enrichment otherwise). The amount
awarded is what it would’ve cost to pay for the services had they been provided by
someone other than the party in question.
Cartwright J (majority):
o Follow a broader interpretation of Maddison v Alderson – the acts in question need to
be referable to some such agreement, not a specific agreement. They can point to more
than one sort of agreement; so long as they support it the doctrine can be invoked.
o The right to recover a (restitutionary) quantum meruit for the services provided is based
on legal obligation, not contract. Where there’s an express contract which is
unenforceable due to the Statute, no other contract can be implied from the doing of
acts in performance of the unenforceable contract. There’s no fresh contract made out
of the existing unenforceable contract that the adjacent property would be devised in
exchange for services. BUT it would be unjust enrichment to give the estate the benefit
of the services provided in exchange for the unenforceable contract, so there’s an
obligation to pay fair value for the services.
Thompson v Guaranty Trust Co (1974 SCC)



The deceased (Dick) agreed to devise his estate to the plaintiff (Gus) in light of his working with
the deceased and operating his farm. Gus and Dick lived on the farm together, with Gus initially
as an employee. Dick was injured many times, and Gus took over operations for him and cared
for him; in response, Dick promised to devise his estate. The presumed will was stolen during a
break-in. The local lawyer, when Dick told Gus to get a will drawn up, set up a power of attorney
instead.
So there’s no evidence in writing of the agreement to devise the estate. For part performance to
apply, the acts relied upon as part performance must be unequivocally, and in their own nature,
referable to some such agreement as that alleged.
o So the broader test is the law.
Everything the plaintiff did was unequivocally referable to the agreement, and to the farm in
question. His actions substantially improved the farm, and the parties agreed to share in the
profits; the division of the enrichment is distinct from the promise.
Lensen v Lensen (1984 SKCA)

2 theoretical bases for part performance doctrine:
o Evidentiary: evidence of part performance is sufficient to allow the contract to be
enforced in equity, despite non-compliance with the Statute
32
o

Equitable: part performance raises equities which make it unjust not to enforce the
contract
Acts of part performance only need to be referable to “some title” or contract dealing with the
land, not the specifically alleged one. If this test is met, then there has to be proof on a balance
of probabilities that the contract exists, and that it’s why the part performance was done.
PRIVITY OF CONTRACT



Treitel defines privity as “a contract cannot as a general rule confer rights or impose obligations
on any person except the parties thereto”.
Two main applications:
o “officious intermeddlers” who would try to enforce a contract despite not being party to
it
o third party beneficiaries of the contract who are contemplated by the contract, but not
party to it (so there’s no consideration coming from them)
This only emerges as a doctrine in the early 20th century. It’s been rejected in most jurisdictions,
but not in Canada. It’s not clear that there’s a sound theoretical justification for keeping it
around.
Provender v Wood (1630)


Defendant promised plaintiff’s father to pay a sum to the plaintiff on his marriage. The son sued.
Holding: the third party beneficiary could bring an action to have the contract enforced.
Tweddle v Atkinson (1861, Eng QB)



Basically the same facts as Provender, a promise made to the plaintiff’s father to pay the plaintiff
on marriage
Wightman J – there was no consideration flowing between the plaintiff and defendant, and the
contract is not enforceable by a stranger to the consideration
Crompton & Blackburn JJ – consideration must move from the party entitled to sue, and love or
affection are not sufficient as consideration
Dunlop Pneumatic Tire Co Ltd v Selfridge & Co Ltd (1915, HL)


Dunlop sold their tires to Dew & Co, on the term that Dew not sell the tires at below list price
except to people involved in the motor trade. Selfridge bought tires from Dew for resale, signing
a contract with Dew not to sell them below list price (and imposing a penalty owed to Dunlop
for each breach). Selfridge then sold below list price, and Dunlop sued.
Viscount Haldane:
o Only parties to contracts can sue on them.
o Contracts not under seal are only enforceable if there’s consideration flowing from the
promisee at the promisor’s request. Agents for parties can sue on the party’s behalf if
there’s consideration.
o On these contracts, no consideration flowed from Selfridge at Dunlop’s request. Dunlop
contracted with Dew, and Dew with Selfridge, and the consideration is limited to those
33

relationships. So there’s no consideration on which Dunlop can enforce their terms
against Selfridge. There’s 2 discrete contracts – they’re not transitive.
Lord Dunedin:
o The doctrine of consideration may have undesirable effects in cases like this, but it’s
established law.
o It’s possible to construct the agreement to treat Dew as an agent of Dunlop (so Dunlop’s
the principal). But the agreement here isn’t an agreement of sale – it’s a collateral
contract between Dew and Selfridge. Dew held title to the tires after they bought them,
and nothing Dunlop did created a defect or burden on that title. Dunlop didn’t provide
any consideration for the agreement with Selfridge – their contract was fulfilled when
Dew sold the tires in accordance with their terms.
Overcoming Privity

The privity rule can be circumvented in some circumstances. Beyond the ones listed below,
there are others:
o Earlier assignment or indemnification agreement between the promisee and the third
party
o An action brought based on a tortious breach of duty (concurrent liability)
o Where there’s a collateral contract (e.g. consumer warranties)
o When Lord Denning decides he doesn’t want to follow it (Smith)
Statutes


Statutes can circumvent privity and allow 3rd party beneficiaries to enforce agreements.
Examples:
o Insurance legislation
o Consumer protection legislation (warranties, etc.)
Specific Performance
Beswick v Beswick (1968 HL)




The deceased agreed to transfer control of his business to his nephew in exchange for an
annuity for his widow (also his executor). The nephew didn’t pay.
On appeal, Lord Denning said that privity is a procedural rule, not a rule of right – where a third
party has a legitimate interest in enforcing the agreement, specific performance could be
ordered.
Lord Reid:
o The privity rule isn’t just a rule of procedure – it precludes the widow from enforcing the
agreement qua widow. But the widow is the deceased’s executor/administrator and can
compel the performance of the obligation for her benefit in that capacity. It would be
patently unjust to allow the nephew to get the business in exchange for nominal
damages for breach (which’d be the legal remedy, since there’s no loss for the estate). A
proper remedy in this scenario would be to order specific performance.
Lord Pearce:
o The administrator (only as administrator, not as the widow) is free to choose between
specific performance and damages (for repudiating the agreement). It would be unjust
34
o
to impose nominal damages for a substantial breach. But specific performance makes
more sense: the intention of the deceased was to provide an annuity, not a lump sum.
And the defendant has already received the whole benefit of the contract, so it’s
equitable to compel him to uphold his end (just as he could’ve recovered for default by
the deceased).
Mutuality is a ground in favour of specific performance.
Trusts


The beneficiary of a trust can enforce the trust obligation, even though they’re not party to the
trust agreement between the settlor and the trustee.
There has to be evidence of an intention to create a trust. Express words of trust are not always
necessary.
Agency

Where the promisee is contracting as an agent on behalf of the third party, then privity doesn’t
apply at all – the promisor and the third party are in a direct relationship.
New Zealand Shipping Co Ltd v AM Satterthwaite & Co Ltd (1975 PC)





NZS worked as a stevedore and agent for Federal Steam, the carrier. A drill was to be delivered
to Satterthwaite; on the bill of lading, there was an exemption clause that excluded liability for
servants or agents of the carrier, and limited the amount that the carrier was liable for. The drill
was damaged by the stevedore’s negligence when they were unloading it. There was no
declaration of the value or nature of the shipment, so Satterthwaite was caught under the
limitation clause. But they sued the stevedores for negligence.
There is a possible exception to privity where one party acts as agent for the third party. There
are 4 requirements (Scruttons):
o The bill of lading makes it clear that the stevedore is intended to be protected by the
provisions that limit liability;
o The bill of lading makes it clear that the carrier is contracting for those provisions on
their behalf AND as an agent for the stevedore that the protections apply to the
stevedore as well;
o The carrier has authority from the stevedore to do so (either at the time, or with later
ratification);
o There’s no difficulty with consideration moving from the stevedore.
The first three elements are clearly met on the facts. Difficulties in consideration have to be
considered in light of the commercial circumstances of the transaction. All parties are engaged
here to make a profit.
The bill of lading contemplates that services could be provided by independent contractors –
they are exempt while discharging their services under the contract. The Court interpreted this
as a unilateral contract (which could become mutual) – it’s an offer to the world that if you
unload the ship, I’ll give you the exemption in the bill of lading. (There doesn’t appear to be an
offer, in truth, but the court wanted the stevedores to win.) The performance of the service was
consideration for extending the exemption clause.
The particular construction of the contract is less important than giving effect to the clear
commercial intention of the parties as evinced in the document (within the confines of existing
35
law). The exemption clause is a signal to who should buy insurance – it’s nothing shady. And
allowing the stevedores to be sued would multiply causes of action against servants and agents,
which would in turn make services more expensive.
Employment
London Drugs Ltd v Kuehne & Nagel International Ltd (1992 SCC)






London Drugs delivered a transformer to K&N for storage. The storage contract included a
limitation clause, as well as an option to purchase additional insurance (which London Drugs did
not exercise). K&N’s employees attempted to move the transformer, but didn’t follow safe
practices; it fell and was damaged. London Drugs sued K&N and the employees.
The employees were negligent in their actions, and there was a duty of care owed to London
Drugs when handling the transformer. K&N were covered by the limitation clause; the issue is
whether the employees could be sued, since they weren’t party to the contract between K&N
and London Drugs.
Privity should be modified to provide an exemption for employees under employers’ limitation
of liability clauses. They’re third party beneficiaries, but it flies in the face of commercial reality
(since it disrupts the parties’ allocation of risk and insurance purchase – amounts to a unilateral
modification of the contract), justice, and common sense to deny them coverage. This is an
incremental change – any radical change has to come from the legislature.
Privity doesn’t take into account the relationships between employers and both their employees
and their customers. The contracts are specific to the services they provide. Employees provide
specific services to employers for wages – they’re performing the employer’s contractual
obligations for the customers. There’s an identity of interest between employers and
employees, as far as contractual obligations go. (Suing an employee in tort is an attempt to
circumvent the contract.) It is not plausible that a customer would see a limitation of liability
clause and conclude that they’re not responsible to buy insurance, or that they don’t have to
because they can recover from the employees.
Employees can obtain the benefit of an employer’s limitation of liability clause (as a shield)
where:
o The limitation of liability clause must, either expressly or implicitly, extend its benefit to
the employees seeking to rely upon it;
o The employees seeking the benefit of the limitation clause must have been acting in the
course of their employment AND must have been performing the very services provided
for in the contract between their employer and the customer when the loss occurred.
It depends on the intention of the parties – was the clause intended to cover employees? Look
at the language of the contract. If it’s not explicit, coverage can be implied in light of commercial
realities based on the identity of interest between employer and employee. (Here, the term
“warehouseman” was read to contemplate the employees.)
Edgeworth Construction Ltd v ND Lea & Associates Ltd (1993 SCC)

Edgeworth won a bid to build a highway, based on the drawings and specifications ND Lea
provided to the province. They sued ND Lea for negligent misrepresentation (which was
established under Hedley Byrne).
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The province did not assume full liability for the drawings after they were provided – they
continued to be representations from the engineers. Edgeworth relied on them at all times,
before and after the contract was made.
There was a limitation of liability clause in the tender documents that absolved the Province of
liability; there was no indication that it contemplated the engineers. Under the circumstances,
this doesn’t qualify for the London Drugs exemption. ND Lea could take measures that the
employees couldn’t (e.g. disclaimer on documents, insurance, term that the drawings could be
modified after acceptance). So there’s no inference that the limitation clause applied to them.
Subrogation
Fraser River Pile & Dredge Ltd v Can-Dive Services Ltd (1999 SCC)

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Fraser River chartered a barge to Can-Dive. Fraser River’s insurance contract for the barge
included a waiver of the right to subrogate (to the other party in their stead) against charterers.
The barge was lost; Fraser River made an agreement to waive the waiver, and the insurance
company sued Can-Dive through subrogation. (So Can-Dive is the third-party beneficiary who
wants to enforce the waiver.)
London Drugs was not intended to be strictly limited to employer-employee relations. The test
goes beyond this:
o Did the parties to the contract intend to extend the benefit in question to the third party
seeking to rely on the contractual provision?
o Are the activities performed by the third party seeking to rely on the contractual
provision the activities contemplated as coming within the scope of the contract in
general, or the provision in particular, as determined by reference to the intent of the
parties?
The contract clearly contemplates charterers as relevant third parties, and the “activities
contemplated” are connected to the charter, not to the contract between Fraser River and their
insurance company. And there’s no indication in the provision that it’s conditional on Fraser
River’s initiative – it applies to all charterers. Can-Dive had an inchoate right under the contract,
which crystallized into an actual benefit when the contract between them and Fraser River was
signed. At this point they were party to the initial contract, as far as the waiver clause went, and
it could not be altered without negotiation between all parties involved, including Can-Dive.
(This doesn’t modify the right to amend contractual provisions in other circumstances, only
where there’s inchoate rights that have crystallized.)
Privity can be relaxed where there’s a commercial context, and the parties involved are
sophisticated. It shouldn’t apply to contracts of insurance. Any limitations on the extent of a
benefit for a third party, or the terms under which the benefit will be available, need to be
clearly expressed in the contract.
CONTINGENT AGREEMENTS

Contingent agreements are those where their operation depends on an event which is uncertain
to occur. There are 2 types of contingent conditions:
o Promissory: where one party has the power to bring the event about (can be actionable
if the event doesn’t arise)
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o Contingent: where neither party has the power to bring the event about
They can be conditions precedent or conditions subsequent (which determines an
existing/previously binding contract). Contracts can be binding where there’s an unfulfilled
condition precedent, imposing obligations on the parties.
Similarly, there are conditions precedent to obligation (making the contract binding – door #1)
and conditions precedent to performance (where there’s a duty triggered – door #2). The first
ones are “illusory” conditions precedent – you can’t rely on them to make the agreement
enforceable.
o You can draft around door #1 conditions by being clear and explicit about what has to
be done and on what terms.
The function of the condition is a matter of construction – look at the intention of the parties
and the language of the instrument.
You can imply subsidiary obligations to try to bring the event about to satisfy the condition (e.g.
Dawson, zoning approval). There has to be an actual contract in existence to imply terms.
o Implied terms can introduce consideration into an agreement. Or they can make a
binding obligation out of a current agreement that prima facie lacks consideration (e.g.
Wiebe’s consideration was to make reasonable efforts).
The remedy for breach of a condition (subsidiary or otherwise) is to put the victim in the
position they would be in had the contract been performed. Where there is uncertainty as to
whether a subsidiary obligation would be successfully met despite reasonable efforts, damages
will have to be reduced in accordance with the chance of success.
o Where fulfilling the obligation is still possible, and desired at the time of the claim, then
specific performance can be awarded instead of damages.
Wiebe v Bobsien (1985 BCSC)
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Bobsien offered to sell his home to Wiebe; the sale was subject to Wiebe selling his home.
Bobsien withdrew the offer, but Wiebe didn’t accept that and fulfilled the condition.
Deposits are not consideration for an option (they are security for performance of the contract)
– they are discrete and cannot be consideration there.
Conditions precedent either prevent the creation of a contract, or suspend performance until
the condition is met. In real estate, conditions typically suspend performance, and create a
binding contract. Where a contract exists there can be subsidiary obligations.
Contingent conditions can prevent contracts from being formed if it was not the intention of the
parties to be bound until the condition was fulfilled.
Conditions are illusory where they involve “fancy or taste”, where there is no objective way of
determining whether the condition has been satisfied or not. “Likes the property” is illusory,
“engaged in good faith efforts to sell their property” can be objectively verified.
Wiebe v Bobsien (1986 BCCA, dissent)
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Conditions precedent have to be constructed on the facts.
There are 3 types of conditions precedent:
o Purely objective
o Purely subjective (illusory)
o Partly objective and partly subjective (subject to city approval, etc.)
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For the third type, sometimes terms can be implied (“reasonable steps”, etc.) to give business
efficacy to the transaction. But sometimes they can’t if they don’t meet the officious bystander
test (e.g. “reasonable steps to sell your house” – at any price, to anyone, whenever?)
Where terms cannot be implied to give business efficacy to the condition, then it’s a contingent
condition and there’s no contract.
Dynamic Transport Ltd v OK Detailing Ltd (1978 SCC)
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A contract was drawn up for the sale of land, which the defendant wanted to bail on (value of
land increased). The contract didn’t state who would get approval for subdivision, which was a
condition precedent.
This condition precedent was a promissory one – one or both parties could make the condition
happen, and the Court will imply obligations where it can to give business efficacy to the
contract.
Both parties know what has to be done to make the transaction succeed. Vendors generally
have an obligation to act in good faith and take reasonable steps to complete a sale. So there
can be a term implied that the vendor should take reasonable steps to get subdivision approval,
per statute. There’s no vagueness in how this happens, so they cannot escape the contract.
Remedy: OK had to make good faith efforts to get subdivision approval; if it failed, then no
remedy. But if they didn’t make efforts, then damages are equal to the difference between the
price of the land and the offer accepted.
Eastwalsh Homes Ltd v Anatal Developments Ltd (1993 ONCA)
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Anatal was to sell lots to Eastwalsh, a condition of the agreement was to have the subdivision
registered (failure leading to termination of the deal – condition subsequent). Trial judge
determined that Anatal did not use best efforts, but only had a 50% chance of success.
General rules for damages:
o If plaintiff proves, on balance of probabilities, that they suffered damage as a reasonable
and probable consequence of the breach of contract, they can recover. The damage
must not arise from an intervening factor. Where it cannot be proven, or the loss is
trivial, nominal damages will be awarded.
o Difficulty in assessing damages does not justify refusing to award them. Where there’s a
chance of a loss, rather than a certain loss, damages are awarded proportionately to the
chance of success – the award is discounted by the improbability of the chance
occurring.
o Proof of a mere chance isn’t sufficient to ground recovery. There has to be a
“reasonable probability” of realizing an advantage of substantial value (a “real and
substantial loss”). What a “substantial” loss is seems vague (at least 20% chance seems
to be the lower limit).
o Causation is a distinct issue from loss.
Since on a balance of probabilities this deal would’ve failed even with reasonable efforts, only
nominal damages are merited.
39
Unilateral Waiver
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
A condition precedent can be waived or varied if the parties want that. It should be made
explicit that this is permissible. But watch out for Turney.
Conditions that benefit both parties cannot be waived unilaterally.
Turney v Zhilka (1959 SCC)
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There’s a contract for sale of land subject to a condition that the village council approve of it.
The purchaser makes efforts to secure it, and when the deadline approaches he claims to waive
the condition since it’s for his benefit; the sellers want out.
Waiver is permissible where it involves a party forgoing an advantage or dispensing with
promised performance for the benefit of one party alone (if it’s severable).
There’s no waiver without a right or condition to be waived. The condition is contingent on
approval by a third party. There’s no right to performance until that condition is satisfied. You
cannot waive “true conditions precedent” that precede the formation of obligations. Since
there’s nothing to waive yet, the attempt to waive is actually an attempt to rewrite the contract.
It’s unclear in Turney whether it’s a door #1 condition; it can be verified objectively.
Based on Turney, since there are no obligations for “true conditions precedent” there cannot be
any implied subsidiary obligations implied for them. Subsequent courts have implied terms
anyway (e.g. implying a good faith term to pursue the condition).
Getting around Turney:
o Repackage it as a door #2 condition (Steiner, Haupt)
o Distinguish it away
o Ignore it
o Draft around it and make it impossible to construe the condition as a true condition
precedent. Make it explicit that it can be waived (through a waiver clause, perhaps
identifying it for the protection of the purchaser). Or make the condition into a
condition subsequent (so breach means the contract is void).
REPRESENTATIONS AND TERMS
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Statements made pre-contractually can have legal implications. 3 types:
o Statements made without contractual intent.
o Mere representations – claims about facts, true or false.
o Terms – including representations about the future.
Misrepresentations (Fridman): “A misstatement of some fact which is material to the making or
inducement of a contract.”
Misrepresentation and Rescission

Terms always incur liability for breach. Non-contractual statements don’t. (Mis)representations
can incur liability where they are statements of existing fact.
o Mere puffs don’t count
40
o
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Statements of opinion don’t count unless given negligently in a professional capacity
(Hedley Byrne)
o Representations to the future don’t count (they have to be terms)
 This can be constructed creatively – if there’s fraud or deception which can be
established as a matter of fact (Eddington – misrepresentation about the future
use of funds from a loan)
Misrepresentations are actionable where they are:
o Material (would have affected the judgment of a reasonable person with regards to the
terms of the contract, skipping inquiries they would’ve otherwise made)
o Unambiguous
o Relied upon (question of fact)
Where the representation is fraudulent, then having an opportunity to discover the truth has no
bearing on an action. Where it is negligent or innocent, there is no obligation to exercise due
diligence, and a claim can still be made.
There’s no general duty to disclose – silence is not a misrepresentation. Such a duty can be
specified. Exceptions:
o Half-truths/lies by omission (which imply that the representation is true)
o Where the truth is deliberately concealed
o Where material circumstances change that impact the truth of an earlier statement
Rescission is an equitable remedy which aims to put the plaintiff in the position they were in
before the contract was made (contrast with damages, which aim to put them in the position
they’d be in had it been performed).
Remedies for misrepresentations:
o Innocent: rescission
o Negligent: rescission + damages
o Fraudulent (cite Redgrave): rescission + damages
Rescission can be barred:
o Laches (taking too long to file an equitable claim)
o Affirmation of contract
o Impossibility, impracticality, or injustice in restitution
o Prejudice of third party rights
o (Innocent/negligent only) execution of the contract for land/goods (questionable,
governed by statute)
 Property – governed by doctrine of estates (discrete from contract – on
execution, the contractual interest is merged into the estate)
 Sale of Goods Act (AB) – if acceptance of goods, then breach of a condition is
breach of warranty, not grounds for rejecting the goods; acceptance of goods
occurs after the lapse of a reasonable time without intimating to the seller that
there’s been rejection
Redgrave v Hurd (1881 ENCA)

Plaintiff offered to sell his legal practice to defendant, and when defendant asked him for
documents about its value he provided some papers which the defendant didn’t actually
examine. Defendant paid a deposit and moved nearby, and afterward discovered that the
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practice was worthless. The documents were worthless in proving the value of the practice.
Plaintiff sued for specific performance when defendant tried to pull out.
Equity prevails – nobody should be allowed to profit from false statements. Statements must
have been made recklessly (indifferent to truth), not with the mistaken belief that it’s true.
Failure for the representee to exercise due diligence is not a defence to a claim of
misrepresentation, unless there is a long enough delay to trigger laches. The effect of a false
representation is not eliminated by the representee’s negligence.
To claim in equity, the false representation must be relied upon to induce the contract. While at
trial the judge held that the unexamined papers defeated reliance, there were no materials
which the defendant could actually have used to examine the state of the practice. Where there
is a material representation made for the purpose of inducing entry into a contract, there is an
inference that the representation was relied upon by the representee. This inference can be
defeated either by demonstrating that the representee knew the representation was false, or
that there was no evidence of material reliance on the representation in their conduct.
o This is more plausibly thought of as an inference of fact, not of law as Redgrave
suggests.
Smith v Land and House Property Corp (1884 ENCA)
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Plaintiffs sold a hotel to defendants with a tenant they called “most desirable”. The tenant went
bankrupt after the sale and the defendants refused to complete the sale.
Where knowledge of the relevant facts is not equally available to all parties, statements of
opinion by someone with superior knowledge of the facts can be material (and give rise to an
action). The implication is that they know facts which ground their opinion – particularly if the
facts are peculiarly available to them.
The representation here was not to the future – it was a statement that he was a satisfactory
tenant. There was no reasonable ground for making that statement on the facts.
Bank of British Columbia v Wren Developments Ltd (1973 BCSC)
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
Allan provided written guarantees as security for a loan made to Wren (run by Smith) by the
Bank; shares were provided as collateral. Smith released some of the shares, without telling
Allan, for the purpose of paying down the loan. He was not authorized to do so. Allan signed a
second guarantee after this, on representations from the bank that everything was fine but
payments were behind; there was no indication that the collateral shares had been released
when he signed. The Bank came after Allan for money based on the guarantee.
The failure to disclose a change in material facts was an implied misrepresentation that induced
Allan to sign a new guarantee. He would not have signed it had he known the true state of
affairs. The Bank’s silence about the change implied that there were no relevant material
changes; they were obligated to disclose information that the guarantor would not otherwise
know or expect to be true (per the law of guarantees). Since Smith acted without authorization,
and the Bank couldn’t prove what happened with the released shares, there is no judgment for
the debt.
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Kupchak v Dayson Holdings Ltd (1965 BCCA)
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The Kupchaks bought a motel from the defendants in exchange for some of their property, and
they began to run the motel. 2 months later, they learned that the defendants’ representations
about the motel’s earnings were false, and they stopped paying the mortgage. Subsequently,
Dayson sold half the interest in one of the properties received from the Kupchaks, and the
building was torn down and replaced. A year later Dayson attempted to foreclose on the
Kupchaks and they sued for rescission.
Rescission was denied at trial because the property could not be restored – the building was
torn down. But the representation was fraudulent.
Where someone has acquired a property by fraud (including fraudulent misrepresentation),
they cannot raise their own dealings with the property as a bar to restitution. Only if restoration
is impractical or unjust will restitution be modified by equity.
Here, the third party was not party to the fraud; it would be unjust to deprive them of the
property to restore the Kupchaks. Where perfect rescission is not possible or just, equity can
order that compensation be paid out to remedy deficiencies in rescission where equitable
(adjusting the rights of the parties). The court can act with discretion to be “practically just”.
This is NOT damages – you can’t receive damages and rescission.
The guilty party has to prove laches or affirmation as a defence to rescission.
o Laches: where the innocent party takes too long to claim their right in court (“equity
aids the vigilant”); it can be considered evidence of affirmation. Operates on terms of
equity, considering the length of the delay and the nature of the acts done during that
time (which affect the rights of the parties and any relevant 3rd parties, shifting the
equities).
o Affirmation: if the innocent party by conduct shows that they intend to uphold the
contract, rescission can be denied. You can’t change your mind after you affirm.
 Continuing to operate a business, or taking actions to mitigate the wrongful
conduct, is not necessarily an affirmation or waiver.
Dissent: continuing to manage the motel was an act of affirmation.
Representations and Terms

Terms are distinguished from pre-contractual misrepresentations based on the distinction
between statements of fact (misreps) and promises (terms).
Heilbut, Symons & Co v Buckleton (1913 HL)
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Buckleton bought shares in Filisola through an agent, based on Heilbut’s claim that Filisola was a
rubber company that they were bringing out; Buckleton took Heilbut’s position in the trade as a
guarantee of Filisola’s quality. Filisola was discovered to have a deficiency in rubber trees, and
their share value dropped.
It’s not clear there was reliance here – the representation was that Filisola was a rubber
company, but the reliance was on Heilbut’s reputation.
To recover, there must be a warranty – a collateral contract which varies or adds to the terms of
the primary contract (and imposing its own liability), where the consideration is entering into
the main contract. The two are discrete, but connected. Collateral contracts must be proven
43
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strictly based on the totality of the evidence, both its terms and the intentions of the parties.
Where there is no evidence, a representation cannot be treated as a collateral contract.
There is no liability for innocent misrepresentations. Where the statement is fraudulent (or
made recklessly, indifferent to its truth), or a clear intention to establish a collateral contract
that imposes binding obligations, liability could be found.
Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd (1965 ENCA)
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Bentley sued Smith for breach of warranty for sale of a car. Smith told Bentley that he was in a
position to find out the history of cars, and that it was a very nice one; the engine had recently
been replaced and only 20 000 miles had been driven since. The car was a lemon.
The test from Oscar Chess: would an intelligent bystander reasonably infer that a warranty was
intended – that is, that the parties intended to create a term of the contract? If not, then it’s an
innocent misrepresentation and there’s no right to damages.
Where a representation is made for the purpose of inducing action by the other party, and they
act on it, then there’s a prima facie inference that the representation is a warranty. This can be
rebutted by showing that it was made innocently, and that it would not be reasonable to be
bound by it.
o Oscar Chess distinguished – the facts were similar, but the seller of the car was not in a
position to know better regarding the state of the car. There were reasonable grounds
to believe it was true. But here, the dealer was in a position to know better and it was
unreasonable for him not to have.
Concurring judgment: if a statement is intended and understood as a legally binding promise,
it’s a warranty (e.g. “I will sell you a car with 20 000 miles on the engine.”).
Leaf v International Galleries (1950 ENCA)
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Leaf bought a painting thinking it was by Constable, based on the seller’s representation. When
he went to resell it, he was told by the auctioneer that it wasn’t a Constable (a finding of fact
accepted at trial), though the seller maintained their disagreement. Leaf brought an action for
rescission only, not damages – he maintained it was an innocent misrepresentation. The sale
had long since been executed.
Lord Denning:
o Mistakes can either be in substantia (meaning that there’s been a misrepresentation
which renders the subject of the sale different from what was contracted for) or in
quality. A mistake about the quality of the subject-matter of a sale can be either a
breach of condition or of warranty. For breach of condition, the item can be rejected;
for warranty, only damages can arise. (This is a question of interpretation – Denning
held that this was a mistake of quality, but the mistake in artist may be a mistake in
substantia as well.)
o Per the Sale of Goods Act, once goods are accepted they cannot be rejected, and
acceptance is deemed to have happened if the buyer retains the goods without
intimating to the sell that there’s a rejection. This means that breach of condition is
barred by statute once the goods are accepted. It’s been years since the purchase, there
can be no rejection here.
44
o
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Rescission can be awarded even after a contract is executed. But where a claim for a
breach of condition is barred, a claim to rescission due to innocent misrepresentation is
also barred. If you can’t reject goods for breach of term, you can’t reject them for precontractual misrepresentation either (as it wouldn’t be equitable in the circumstances
to sit on the item for years then claim rescission).
Evershed:
o The buyer got what he contracted for – the painting. There was a representation that it
was a Constable, but he didn’t buy that.
o There’s often difficulty in determining who painted a picture or made some art – legal
remedies shouldn’t have to depend on the views of critics. And it is difficult to tell
whether over time the nature or value of the object has changed due to wear. Where a
chattel is purchased based on a representation, and the thing is accepted, the
transaction is finished. Allowing contest at a later date would undermine business
dealings.
o Where legal remedies are available, it is more difficult to invoke an equitable remedy.
Fair Trading Act
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This is an Alberta statute which governs unfair trade practices, including a variety of
misrepresentations. It’s on p. 386.
Under the statute, the courts can use broad discretion to craft a remedy. So execution isn’t an
insurmountable problem.
Parol Evidence
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The parol evidence rule excludes oral (or written) statements preceding or contemporaneous
with the written contract. Where it applies, all pre-contractual statements are mere
representations.
Two versions of the rule exist (McCamus) (not clear which rule prevails, though the modern
seems to be relied on nowadays)
o Traditional - where a written agreement appears to be complete, parol evidence
(outside evidence) is not admissible if it contradicts, varies, adds to or subtracts from
the agreement. Parol evidence can only be used to patch up incomplete agreements.
o Modern - emphasis on need to demonstrate that parties intended to reduce the
agreement into writing. All evidence of prior communication is admissible where it
evinces an intention to reduce the agreement to writing.
Exceptions:
o if an agreement is only partly written (and partly oral)
o if there is evidence of fraud or misrepresentation
o if there are ambiguous terms that need clarification through outside evidence
o if your contention is that the agreement is wrongly recorded (seeking order of
rectification)
Look to the handout.
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Concurrent Liability in Contract and Tort
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Under the leading case of BG Checo, concurrent liability exists in tort and contract so long as the
claim in tort is not expressly limited or eliminated by the contract
The possibility of concurrent liability emerged with Hedley Byrne and the tort of negligent
misrepresentation. Concurrent liability was resisted for years, though (Nunes 1972 SCC –
rejected tortious liability). Fully recognized in 1986 in Rafuse, where it was held that a contract
could create a relation of sufficient proximity to ground a duty of care, and the duty was
coextensive with the obligation imposed by the contract.
o Keep Hercules Management in mind – proximity is key, not merely a special
relationship.
o Rafuse – you can’t use tort to circumvent contractual obligations.
It is unclear if exemption clauses apply to pre-contractual misrepresentations – in principle they
shouldn’t because they come into existence after the representations are relied on to induce the
contract.
Keep in mind the difference in damages between tort and contract:
o For contract, the plaintiff is entitled to be put in the position they’d be in if the contract
had been successfully executed (their expectancy interest [the monetary equivalent of
performance], less any cost to achieve the expectancy). They can also recover “reliance
costs”, money spent through reliance on the contract.
o For tort, the plaintiff is entitle to be put in the position they were in before they suffered
the injury (so no damages for lost profit, etc.)
Sodd Corp v Tessis (1977, ONCA)
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Defendant was an accountant and a trustee for a bankrupt company. Defendant made
representation to the plaintiff about the value of goods advertised for sale in the bankruptcy,
which was negligent and grossly overvalued the items.
At trial, defendant was held liable because as a trustee, he had to act responsibly in advertising
tenders and in giving advice about the sale, and it was reasonable for the plaintiff to rely on his
representations. Defendant appealed on ground that there was no special relationship, as
required in Hedley Byrne.
CA – as a professional accountant and trustee, the defendant was in a special relationship with
the plaintiff given his responsibility for the goods being sold, and he made a negligent
misrepresentation to the plaintiff.
The pre-contractual negligent misrepresentation induced the plaintiff’s tender, so there was
reliance and liability exists. It is not negligent to rely on the view of the licensed trustee who was
in charge of the goods, especially absent a serious opportunity to inspect the goods.
There is a claim in contract too – it’s a collateral warranty (the goods are worth $35000) to the
tender, which is a binding promise.
The presence of an exemption clause in the advertisement was not sufficient to waive liability –
the misrepresentation fell outside of its range because the collateral warranty was a binding
promise.
46
BG Checo International Ltd v British Columbia Hydro & Power Authority (1993 SCC)
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Checo entered into a contract in part based on the representation that the right of way they
would need for their work would be cleared by a third party. It was not, and they incurred cost
for their own clearing. BC Hydro knew that the work was not done adequately but did not
disclose that. The tender documents were part of the contract.
Iacobucci J. dissented – he held that if the contract dealt with the issue, there could be no
liability in tort. This was rejected.
Aim is to harmonize remedies for breaches of contract and tort where they concur.
Contracts have to be interpreted as a whole – specific provisions should not be superseded by
general ones. Checo had an obligation to inspect the site, but this did not eliminate liability for
the specifically identified obligation on BC Hydro to have the site cleared by a third party.
Remedy in contract is to put Checo in the position they would’ve been in had the contract been
performed properly – cost to clear, and perhaps some overhead.
Where there is a prima facie action in tort and in contract, the party may sue in either or both
except where the contract evinces an intention to limit or eliminate the right to sue in tort.
Key is determining intention – private dealings trump tort law duties, but the tort law duty
remains intact so long as it is not contradicted by the contract.
In a contract, you cannot use general clauses to trump specific duties.
There are reasons to sue in tort and in contract – different limitation periods, etc. But the two
are similarly based in the party’s objective expectation of an obligation and a correlative right.
3 situations where contract and tort meet:
o Where the contract imposes a stronger obligation than tort – this includes most
commercial transactions (e.g. obligations to deliver on time, etc., where there is no
negligence but there is a breach of contract)
o Where the contract imposes a weaker obligation than the obligation in tort – waiver and
exclusion clauses, etc.
o Where the obligations of tort and contract are coextensive
Implied terms in a contract do not oust liability in tort. Implied and explicit terms have identical
impacts.
Specifying a duty in a contract does not necessarily entail ousting tort liability – it can be to
affirm the expectations of the parties, etc. The key is that the parties intended to limit tort
liability. Treating it otherwise makes the law uncertain. Remember that the Court will try to
reconcile terms as much as is possible.
Classification of Terms

There are two basic types of terms: conditions and warranties.
o Conditions are things that go to the root of the contract. When a condition is breached,
the innocent party is relieved of the obligation to perform their part of the contract. If
the contract is a one-off transaction (selling a good, etc.), the service/good can be
rejected unless they accept it (under statute/reasonable time).
• This is a repudiation of a contract (not rescission) – McCamus defines
repudiation as “a severe breach of contract, or the election of the party not at
fault to treat the contract as discharged by the breach”.
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o
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Warranties are peripheral to the root of the contract. When a warranty is breached, the
contract cannot be repudiated. The innocent party can seek damages for the breach,
though.
Classically, the distinction between conditions and warranties was made before breach, and the
breach of anything identified as a condition was sufficient to repudiate the contract. However,
some terms can be breached in more or less significant ways. Under Hong Kong Fir, only terms
which are clearly conditions or warranties are treated as such – ambiguous terms are
“innominate” and they are classified based on the events that arise out of the breach.
Hong Kong Fir Shipping Co v Kawasaki Kisen Kaisha Ltd (1962, ENCA)
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Facts: Hong Kong Fir chartered a ship for 2 years from Kawasaki which was promised to be
seaworthy. It was not, and it was understaffed, requiring 20 weeks of repair. In the meantime,
the price of shipping plummeted. Hong Kong Fir claimed to repudiate the contract twice. At trial
this breach was held to not be a breach of condition.
The key issue/test is whether the occurrence of the breach deprives the innocent party
substantially of the whole benefit that the parties intended to obtain through the contract.
The party in breach cannot rely on their breach to repudiate a contract.
There are two kinds of terms – warranties and conditions (defined above). Sometimes it’s clear
from the start that a term belongs to one category or the other. But often it’s not. When it
cannot be determined from the start, you wait and see what happens in case of a breach.
What destroys the contract is not the breach, but the events that give rise to/arise from the
breach.
A breach of a contractual claim of “seaworthiness” can be serious enough to deprive the benefit
of the contract, or reasonably minor. If the events that arise from the breach are sufficient to
deprive the innocent party of the whole benefit of the contract, then the innominate term is a
condition-like. If not, it is warranty-like.
Here, however, there was still substantial time left on the charter, so the whole contemplated
benefit was not deprived. Hence the innominate condition was warranty-like.
The Doctrine of Frustration
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Frustration refers to the situation where contractual performance is functionally impossible due
to unforeseen or unexpected subsequent events. It’s hard to establish.
o Example (Fridman) – under a lease, the lessee had a contractual obligation to plough the
land. The land flooded. Court took a hard line – the promise made was unconditional, so
the risk of flooding was on the lessee. There was breach of contract.
A successful example – Taylor v Caldwell (1863). A singer leased a music hall, and just before the
concert the music hall burned down. The contract had been frustrated – the existence of the
music hall was essential to the performance of the contract, and neither party was allocated risk
for the burning down of the hall.
There was no frustration in Hong Kong Fir – the situation could be rectified, and the situation
was caused by the fault of the owner.
Main ingredients of frustration:
o The event/change was dramatic or unforeseen
o Neither party assumed the risk of the event occurring.
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o
o
The event/change arose without being either party’s fault.
Performance of the contract is functionally impossible or illegal.
First City Trust Co v Triple Five Corp (1989, ABCA)
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There’s a traditional test for classifying terms – the term and its non-performance goes to “the
root of the contract” for a condition, and does not for a warranty.
Before Hong Kong, breach of a condition means repudiation, no matter how minor that breach
is. This was very harsh and formulaic. Hong Kong introduces the possibility of the innominate
term – the innocent party is discharged from further performance if the occurrence of the event
deprives the party of substantially the whole benefit of the contract. It’s the happening of the
event, not the fact that it’s the result of a breach, that releases the obligation.
If the event is one party’s fault, they’re in breach. If no party is responsible, the contract can be
frustrated.
Hong Kong Fir doesn’t replace the warranty-condition distinction, but supplements it.
3 step test:
o Apply the traditional condition/warranty test from Bentsen – look at the contract in light
of the circumstances around formation, and then decide if the parties’ intention (based
on the contract) will be best carried out by classifying it as a warranty or a condition.
o Consider the commercial setting of the contract – genesis of the transaction,
background, context, market conditions
o If you can’t determine it, then use Hong Kong Fir and assess the gravity of the event
resulting from the breach.
Wickman Machine Tool Sales v L Schuler AG (1974, HL)
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Facts: Schuler and Wickman agreed to allow Wickman to sell Schuler products subject to terms,
including weekly visits to car manufacturers to sell them. Wickman missed a few visits. The
contract had a clause which held that the terms were conditions if they were not remedied
within 60 days. At trial Schuler was allowed to terminate the contract. On appeal, Lord Denning
surveyed the meanings of the word “condition” and construed it using its common meaning (as
“a stipulation”), rather than its technical legal one.
Lord Reid
o The contract has to be interpreted as a whole. The issue turns on the meaning of the
words “remedy” and “condition”.
o “Remedy,” in general, cannot be reasonable constructed to mean that all past (preremedy) and future damage is undone, rather more that there will not be future
breaches.
o Here, the term “condition”, as applied to the visit requirement, seems inconsistent with
legal use – that doesn’t seem to amount to a deprivation of the entire benefit of the
contract. “Condition” has multiple meanings – the common meaning is “a stipulation or
a provision”; sometimes “condition” just means “term.” As a term of art, a condition
means that breach allows repudiation. It should be clear from the contract which
meaning is meant.
o Schuler claimed that the complete deprivation test doesn’t matter – they intended to
make it a condition (using the term), and it should stand as such.
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o
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Parties can make unimportant terms into conditions if they want to. They have the right
to be unreasonable. The meaning of the term “condition” has to be derived from the
parties’ intentions, as sussed out in the contract. The more unreasonable the result, the
less likely it was intended, and the clearer the intention has to be in the contract – use
common sense.
o Given the term, when the contract is read as a whole the reasonable construction is that
failure to remedy the issue would be a breach of condition, not the initial problem
alone. Schuler’s intention was not clear enough, and they were not entitled to rescind.
Lord Wilberforce (partial dissent)
o There’s no grounding for calling a clause arbitrary or capricious, or to evaluate from the
standpoint of a reasonable person – no presumption of forgiveness or tolerance. People
are entitled to be aggressive and insistent on strict compliance.
STANDARD FORM CONTRACTS AND
EXCLUSION CLAUSES
Implied Terms
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3 kinds of implied terms: custom/usage, in fact, in law
Custom/usage – you have to prove that the custom is widespread and notorious; this is hard to
do
Implied in law vs implied in fact – in law, it doesn’t matter whether the parties intended to
include the term. Terms implied in law are legal incidents of the type of contractual relationship
in question – they’re part of every contract (e.g. all franchise contracts have good faith clauses).
Machtinger v HOJ Industries LTD (1992, SCC)
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There are three types of implied terms: terms implied in law, terms implied in fact, and terms
implied as a matter of custom or usage
The intention of the parties matters for terms implied in fact and in matter of custom and usage,
but NOT in law (because legal obligations exist independently of the parties’ intentions)
The reasonable notice requirement of an employment contract is a matter of law, so contractual
intention is irrelevant
Terms implied for custom - there must be evidence to support an inference that the parties
would’ve understood the term to be applicable. You have to prove that the custom is
widespread and notorious.
Terms implied in fact – business efficacy test, terms which would’ve clearly (obviously) been
assumed/agreed to as necessary to the operation of the contract.
o It’s not what reasonable parties would do, but these parties – don’t substitute your
judgment for the parties’.
Terms implied in law – the test is whether the term is a necessary condition of the contractual
relationship, construed pragmatically. They’re part of every contract of that sort.
o It’s not whether the term is necessary for the existence of the contract
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o
They can only be displaced through express contrary agreement. Some cannot be
displaced at all.
Exclusion Clauses
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Exclusion clauses exclude or limit liability for a breach of a contract’s terms (or concurrent
liability in tort). They are used to allocate risk and identify who should buy insurance.
The current governing test is in Tercon:
o Is there a breach of contract (here, contract A)?
o Is the exclusion clause at issue part of the contract that was breached?
o If so, does the exclusion clause apply to the circumstances as a matter of interpretation
(depending on the parties’ intent)?
 What does the exclusion clause do to the action? Does it cut it down in the
circumstances?
 A properly motivated court can usually find a way around an enforcement
clause.
o If it does, is the exclusion clause unconscionable at the time the contract was made (not
the time of the breach)?
 Unequal bargaining power, policy reasons from legislation
o If the clause is valid, are there overriding public policy reasons NOT to enforce the
exclusion clause?
 This is considered at time of breach, rather than at time of agreement (where
unconscionability is determined)
The Doctrine of Unconscionability
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Courts prefer to enforce contracts where possible, but will not enforce contracts where:
o There is procedural inequality in making the contract
 You basically have to show that the weaker party was seriously disadvantaged
(inexperience of parties, unsophistication, absence of independent legal advice,
etc. – they’ve been manipulated)
o There is substantive unfairness
 Absence of benefit to the weaker party, etc.
Tercon Contractors Ltd. vs British Columbia (Minister of Transportation and
Highways) (2010 SCC)
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The Province sent out a “request for expressions of interest” to build a highway, and 6 firms
responded. The subsequent request for proposal limited participation to those 6 firms. One of
the firms teamed up for a joint venture with a non-qualified bidder for their submission, and
they won. The Province knew their bid was non-compliant, but concealed that. The RFP, which
submitting a tender made binding, contained an exclusion clause barring claims for
compensation of “any kind whatsoever” resulting from the RFP.
There is no such thing as the doctrine of fundamental breach.
o Lord Denning tried to introduce this – if there’s a “fundamental breach” of the contract
that goes to its root, the exclusion clause fails as a matter of law and it cannot be relied
upon.
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o
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The magnitude of the breach is a public policy consideration. But exclusion clauses will
stand even if there’s a fundamental breach.
Majority – the exclusion clause didn’t contemplate a damages claim arising from the
participation of an ineligible bidder – that’s not a part of the request for proposals as regulated
by the tendering contract. Barring recovery would strike at the heart of the tendering process –
only compliant bids are to be accepted as tenders.
o The province’s liability didn’t arise from Tercon’s submission, but the non-compliant
acceptance of the other bid which violated the rules of the process.
o The consequences of an exclusion clause depend on its language and construction. Clear
language is required to oust standards for fairness and business efficacy, ESPECIALLY for
procurement processes involving public funds where transparency is needed. This was
not provided in the circumstances – an exclusion clause broad enough to bar actions for
accepting non-compliant bids was inconsistent with the rest of the contract.
o There’s a statutory framework for this tendering process as well – it’s governed by the
Transporation Act, which aims to ensure fairness in the tendering process. Only
compliant bids are statutorily eligible, and only clear language could possibly oust that.
 SKO – can we actually even oust this through drafting?
o IF the clause is read to cover the circumstances of this case, the clause is ambiguous.
Any ambiguity in the clause is resolved against its maker (contra proferentem).
o The tendering process has a procedural and a substantive component – it has to be fair,
as well as competitive.
Dissent – there’s liability under contract A, but the province’s conduct was not so egregious as
to deprive them from the protection of the exclusion clause.
o Unconscionability at time the contract is made – Tercon’s sophisticated and had legal
advice.
o The Transportation Act doesn’t preclude exclusion clauses – so there’s no policy reason
to exclude the clause at the unconscionability step. (This seems too easy given the
requirements of the tendering process, which has to be fair and transparent to maintain
public trust.)
o Commercial example – Plas-Tex, ABCA refused to enforce an exclusion clause where a
defective product was sold (with knowledge of the defect) for the construction of a
pipeline; the court will not enforce an exclusion clause where it will allow a party to get
away with unconscionable conduct (not the doctrine, but an affront to the conscience)
o No public policy reasons – would force government to pay twice, and would give Tercon
more profit by eliminating risk (but what does this have to do with the contract?)
Crafting exclusion clauses:
o You have to use clear words.
o General rules of exclusion may not be sufficient to exclude liability for negligence.
o Contra proferentem - any ambiguity in an exclusion clause is interpreted to the
detriment of the party that introduced the clause.
o In tendering situations, you may destroy the consideration if the exclusion clause is too
strict – a bar to all remedies forecloses on performance of contract A.
Exclusion clauses can be incorporated in two ways: by way of notice, or by way of signature.
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Where they are incorporated by notice, they must be explicitly identified, and the party must
either know, or have been given reasonable notice, that they are assenting to an exclusion
clause.
Where they are incorporated by writing, it has to be reasonable in the circumstances to believe
that they actually received notice of the provision. There are defences to the attempt to enforce
an exclusion clause which was incorporated by signature:
o Fraud
o Misrepresentation
o Non est factum – where the document signed is radically different than the document
that the signer thought they were signing
Thornton v Shoe Lane Parking Ltd (1971 ENCA)
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Thornton was a musician who was injured in a parkade due to both his own and the defendant’s
negligence. The defendant claimed there was an exclusion clause for any liability for “injury in
the parkade”, with notice posted in the parkade; Thornton didn’t read it. The ticket was
automatically dispensed, and on the back it referred to the notices posted. There was also a
warning that all cars are parked at the owner’s risk. He was allowed to recover.
Lord Denning:
o The warning clause doesn’t cover this – there’s no damage to the car.
o There are two approaches to determining whether the exclusion clause applies:
 Approach A: treat it like where an attendant delivers the ticket – the offer is
issuing the ticket, and acceptance is retaining the ticket. This is something of a
fiction, since nobody reads the conditions or rejects a ticket if they don’t accept
them.
 Approach B: treat it as it is. Offer is made in putting the ticket machine out,
acceptance is putting money into it. In this case, any conditions printed on the
ticket are not binding because they come too late. Any conditions on the ticket
would be imposed after the contract is accepted. Any signs in the parkade
cannot modify the terms for the same reason, as the ticket is a condition of
entry.
o Where approach A is taken, the terms are only binding if the customers knew, or was
given reasonable notice, that there was writing on the ticket which included conditions.
o Exclusion clauses have to be specifically and explicitly identified to be binding. They
can’t be slotted in with other “conditions” since they are radically different than other
regulatory conditions.
Lord Megaw:
o It would have been practically impossible for notice of the exclusion clause to be
identified under the conditions in the lot – it would be almost impossible to withdraw
from the lot when you’re entering it (you’d have to block off all other traffic). Unless this
was the defendant’s plan, then it’s not plausible to hold that the customers were given
notice of the conditions that bound them.
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Tilden Rent-A-Car Co v Clendenning (1978 ONCA)
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Clendenning rented a car, and bought additional insurance coverage. He signed the contract
without reading it, and the clerk knew that. He had previously bought similar coverage, and he
hadn’t read the contracts then either. There were conditions on the front and the back of the
contract; the ones on the back were in very small and faint typing. Clendenning crashed the
vehicle when he tried to avoid colliding with another car; he was intoxicated. This was held to
violate the conditions; he said that if he knew their extent he wouldn’t have bought the
insurance. Practice in the industry was not to discuss the exclusion clause unless the customer
raised the issue.
The rule in L’Estrange – when a document containing contractual terms is signed, absent fraud
or misrepresentation the signing party is bound by the contract, regardless of whether they’ve
read it or not.
An essential part of any contract is a meeting of the minds – the parties must believe that they
are assenting to all the contract’s terms. Where this is not the case, and one party knew or
should’ve known that the other one was not assenting to everything, the contract won’t be
enforceable even if signed. The signature must represent the true intention of the parties, and if
a reasonable person would think they weren’t assenting to the clause in question then it won’t
be enforced.
Whether this is the case depends on the circumstances in which the contract is signed. Where
the parties are equal and there’s a full opportunity to consider the terms of the agreement, the
rule in L’Estrange probably applies. But where the transaction is rushed and informal (so
thinking that the signer read and understood the clauses), or where the conditions are harsh or
bizarre, or where the clauses in question are inconsistent with the purpose of the contract as a
whole, or where there are other relevant considerations (faded type, conditions impose
egregious limitations, etc.), then it may not apply.
Dissent: the contract is readable. And the conditions were brought to the signer’s attention on
the front of the contract. The strictness of a clause is no reason to strike it down, if it makes
sense in the context of the contract.
Karroll v Silver Star Mountain Resorts Ltd (1988 BCSC)
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The plaintiff was injured during a ski race, and alleged negligence. She signed a release form, but
she didn’t read it (though she told her friend about what it meant). The form was short, and it
was clearly identified.
Reasonable steps only have to be taken to bring exclusion clauses to the signer’s attention
under certain circumstances:
o Non est factum
o Fraud/misrepresentation
o Where the party seeking to enforce the document knew or ought to have known that
the other party made a mistake in signing (as to its contents)
 Typically doesn’t apply between commercial actors, but can come up in
circumstances like in Clendenning (rushed, small print, etc.)
There is only a duty to take reasonable steps to inform the signer about onerous conditions or
exclusion clauses where a reasonable person should have known that the party signing was not
consenting to the terms in question. There is no general duty. Considerations:
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o
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If a clause runs contrary to the normal expectations of the party, it’s unlikely they
intended to be bound.
o Length and format of contract
o Time available for reading
o other considerations as they arise on the facts
Here, the release was consistent with the contract, it was short and easy to read, and it was
clearly marked. A reasonable person would not conclude that Karroll was not consenting to the
release. Sufficient notice was given to read the release form.